Category Archives: June

A Public Ltd. company started construction of Huge Housing Project in the island city of Mumbai and has given construction contract to about 5 contractors who in their turn has also given sub-contracts for executing a part of contract awarded

With all the sub-contractors, there is a special clause in the agreement that they shall not raise the Bills till the contracts are completed and can draw part of cost of material and even labour charges on account and till today none of the sub-contractors has completed and no Bills are raised, but all the sub-contractors have claimed input credit in their returns and their refund amounts have mounted. However, dept. does not want to sanction any refund because according to dept. there is no output tax and hence no input credit can be given. All the assessments are pending after re-opening by Form 317.

Now it has been suggested that sub-contractors should raise running bills of the part of work executed during a particular year and collect the tax on the same and after adjustment of set off, pay the balance.

The sub-contractors of course all sister concerns only, but different Pvt. Ltd. Companies are afraid whether they can adopt this method safely and the learned counsel is requested to advise.

1) So far as sub-contractors are concerned, whether this formula is a safe action, because if, they are to collect Tax only in final Bills, then they may lose input credit spread over for 5 years.

2) In case of main contractor as well as developer whether they can claim input credit on those tenements only where 1% composition scheme is not applicable.

3) For information it may be noted that all the assessments of main contractors and developer are pending in appeals at various form and they can put up additional ground during hearing of appeal.

4) Since the execution of contracts are likely to continue during G.S.T. era.

Kindly advise what shall be position under G.S.T. era.

Reply

It appears that the situation is arising due to effect of Rule 53(6) of the MVAT Rules. Rule 53(6) provides that where receipts from sale are less than 50% of gross receipts, the set off should be allowed on the purchases which are sold within six months from the date of purchase.

In the given query, there is execution of contract. In other words, there is transfer of property in execution of works contract. However, the billing is not done and hence receipts are not seen.

The department’s view that since there is no output liability the sub-contractor cannot get set off is not correct in the eyes of law. There is no such connection except as provided by Rule 53(6) discussed above.

In case of sub-contractor, though there is no receipts accounted in the accounts since there is transfer of property by incorporation of goods in the works, there is sale and if such sale is within six months from the date of purchase, set off is eligible. Probably the receipts as above may be 100% towards sale and therefore Rule 53(6) may not apply. The sub-contractor can substantiate above facts of use by certificate of architect or by other method. They can also give the data about date of purchases and use and accordingly can get entitled for set off.

Even if bills are not raised it cannot be said that there is no sale. As per law, there is sale and therefore claiming set off will be as per law. The department can also assess the liability on such sales in the assessment, though bills are not raised. As and when final bills are raised, the already assessed turnover should be deducted to avoid double taxation. Therefore, irrespective of bills raised or not, there is sale and department can assess accordingly also allowing set off.

For above purpose the sub-contractor can raise the running bill and can put the figures of sale also. Such running bills will only regularize the sales which are already effected as discussed above. Raising such bills for sales tax purpose is allowable, more particularly it is for discharge of tax.

In appeals you can take additional ground.

The main contractor cannot take set off from sub-contractor bills. They being principal and agent, there is no sale/purchase between main contractor and sub-contractor. Therefore set off will not be eligible. However, sub-contractor should issue Forms 407 and 408 to main contractor and main contractor should take deduction from its contract value. Thus the effect will be same.

If project is approved prior to June 1, 2016 and subsequent fresh approval is obtained after June 1, 2016, whether the project is eligible to claim deduction under section 80-IBA. Note: The project is surely to be completed within 3/5 years of its approval.

Answer

Deduction in respect of profits and gains from housing projects under section 80-IBA of the Income-tax Act, 1961 has been inserted by the Finance Act, 2016, with effective from April 1, 2017 i.e. from assessment year 2017-18.

The sub-sections (1) and (2) of the said section read as under:

“(1) Where the gross total income of an assessee includes any profits and gains derived from the business of developing and building housing projects, there shall, subject to the provisions of this section, be allowed, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business.

(2) For the purposes of sub-section (1), a housing project shall be a project which fulfils the following conditions, namely:–

(a) The project is approved by the competent authority after the 1st day of June, 2016, but on or before the 31st day of March, 2019;

(b) The project is completed within a period of [three] years from the date of approval by the competent authority”.

The Finance Act, 2017 substitutes a period of “three” years to ‘five” years in clause (b) of sub- section (2) above.

Now reading sub-section (2) it is clear that a housing project is a project which is approved by the competent authority after June 1, 2016 but before March 31, 2019. Thus, any project which has obtained fresh approval after the said date is eligible project irrespective of earlier approval. Hence, the project can claim deduction under section 80-IBA of the Act.

Query No..2 : (Joint Development Agreement)

What is Joint Development Agreement u/s. 45(5A)?

If a land owner transfers his land to a Developer through Development Agreement can he treat capital gain in the year in which respective allotted unit is sold before the date of completion certificate?

Does it make any difference if and owner books one house/unit in new scheme developed by Developer?

Answer

Joint Development Agreement has not been defined under the Income-tax Act, 1961. However, the Finance Act, 2017 has introduced new sub-section (5A) in section 45 which defines ‘specified agreement’; which is similar to Joint Development Agreement

As per Explanation (ii) of section 45(5A) “specified agreement” means a registered agreement in which a person owning land or building or both, agrees to allow another person to develop a real estate project on such land or building or both, in consideration of a share, being land or building or both in such project, whether with or without payment of part of the consideration in cash”.

Further, as per the said sub-section capital gain is chargeable to income tax as income of the previous year in which certificate of completion for the whole or part of the project is issued by the competent authority. Therefore, the land owner to whom respective units are allotted in exchange of land cannot treat capital gain the year in which respective units are sold before the date of completion certificate issued by the competent authority.

There is no difference if owner keep a allotted property for himself or sales.

Query No. 3 : (Levy of fees for delayed furnishing return of income)

Does levy of fee for delayed filing of return apply to the below taxable income return? Moreover, if income is below taxable after deduction under Chapter VI-A, (for example net income is ₹ 3,90,000/- and deduction under section 80C is ₹ 1,50,000/-), will the late fee be levied in this case? (for A.Y. 2018-19).

Answer

Section 234F provides that:

“where a person required to furnish a return of income under section 139, fails to do so within the time prescribed in sub-section (1) of said section, he shall pay, by way of fee, a sum of,–

(a) Five thousand rupees, if the return is furnished on or before the 31st day of December of the assessment year;

(b) Ten thousand rupees in any other case:

Provided that if the total income of the person does not exceed five lakh rupees, the fee payable under this section shall not exceed one thousand rupees.

(2) The provisions of this section shall apply in respect of return of income required to be furnished for the assessment year commencing on or after the 1st day of April, 2018.

Section 139(1) provides that every person:

a) Being a company for firm; or

b) Being a person other than a company or a firm if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to tax shall on or before due date furnish a return of income.

So, in this case, a question of levy of fee will not arise as income is below taxable limit and therefore he is not liable to file return of income.

Query No. 4 : (Tax Audit u/s. 44AD r.w.s. 44AB)

ABC partnership firm is engaged in retail business. It sale for F.Y. 2016-17 is ₹ 40/- lakhs. Net profit, before remuneration to partners, but after interest to partners is ₹ 1,40,000/-. The firm gives remuneration ₹ 1,50,000/- to partners and thus, there is a net loss of ₹ 10,000/- In this situation, are books of account of firm liable to Audit under section 44AD r.w.s 44AB?

Answer

From the above stated fact, it is clear that during the financial year 2016-17, a firm has incurred loss of₹ 10,000/-, however, its turnover is less than ₹1/- crore, so a firm is eligible assessee under section 44AD of the Act.

So, it has to offer 8% of the total turnover. If it does not offer 8% of the turnover, then whether it will have to get accounts audit under section 44AD r.w.s 44AB?

Sections 44AB(d) and (e) provides that if a person carrying on the business claims that such income to be lower than the deemed profits and gains of his business under section 44AD and his income exceeds the maximum amount which is not chargeable to income tax, then such person has to get his books of account audited.

So to comply with this section, twin conditions have to be fulfilled, one is that he offers less than 8% of the turnover and his income exceeds the basis exemption limit.

In this case, his income is below the taxable limit i.e. loss, hence, he is not liable to get books of account audited.

Query No. 5 : (Transfer to associated Company)

If an individual sells gold for inadequate consideration on March 1, 2016 to an associate company would amended provisions of section 56(2) apply to it?

Answer

Up to assessment year 2016-17 this section was applicable to an Individual or a HUF, who receives any property exceeding₹ 50,000/-.

From assessment year 2017-18, this section is applicable to all assessees who receive any property exceeding₹ 50,000/-.

In this case, individual has transferred or sold gold for inadequate consideration on March 1, 2016 to associate company i.e. for assessment year 2016-17 therefore amended provision would not be applicable.

Query No. 6 : (Reopening of assessment)

A is not assessed to tax as his income is below the threshold limit, He holds shares of listed companies since 2009 (the original investment value is₹ 15,00,000/-) Now during the F.Y. 2016-17, he wishes to sell the shares through stock exchange. Profit in his hand is LTCG and hence, it is exempted. But can the Assessing Officer ask to prove the source of investment of original investment? Can he make the addition of any type, just like the investment made out of undisclosed income?

Answer

Section 149 provides that no notice under section 148 shall be issued for the relevant assessment year –

i) If four years have elapsed from the end of the relevant assessment year.

ii) If four years but not less than six years, have elapsed from the end of the relevant assessment year unless income chargeable to tax which has escaped assessment amount to or likely to amount to one lakh rupees or more for that year.

So, in this case, assessee sold his investment in shares of listed companies in financial year 2016-17 i.e. in assessment year 2017-18, which is exempt as he paid the STT.

The shares which he was holding since 2009, presumably, had purchased in the financial year 2009-10 i.e., Assessment Year 2010-11.

Therefore, reopening notice for the assessment year 2010-11 could have been issued on or before March 31, 2017.

However, reopening could have been valid only if there was live link between reason to believe and escapement of assessment.

There is a need to do away with input tax credit (ITC) provisions, for real simplification and for eradication of corruption at large, by keeping low rate of tax to be levied on every transaction of supply of goods and services under the GST legislation. However, if the same is not possible at this stage, at least the provision of issuing notice for penalty and for prosecution over and above disallowance of the claim of Input Tax Credit under the GST Act, 2017 may please be deleted in the interest of justice.

1) Unless the issues like the structure of tax rates and the items to be covered under the GST along with several other important issues including the problem of Input Tax Credit are threadbare discussed and finalised, it will create lot of difficulties to all dealers and even to foreign investors who may do business in India in response to appeal made by our Hon’ble Prime Minister.

2) Having experience of more than 50 years as a Sales Tax Practitioner, I take this opportunity to highlight the main problem of disallowance of the claim of Input Tax Credit in case of honest and regular established dealers for many years, by giving example as under:

A dealer has filed returns under the present MVAT Act showing set-off or input tax credit of ₹ 1,00,000/-. However, in assessment set-off is reduced to₹ 10,000, by disallowing set-off (under the GST Act ‘Input Tax Credit’) of ₹ 90,000 on the ground of non-genuine and/or fake purchases. However, though the purchases are genuine and made from long standing established registered dealer from whom the purchases are made regularly by payment of account payee cheque but the said vendor/dealer has failed to pay taxes collected by him to the Government in time owing to heavy loss suffered by him in business and consequent financial difficulties. In such a case, the set-off claim (under the GST Act ‘Input Tax Credit’) will be disallowed in case of various dealers who made purchases from the said vendor. Further, the Enforcement Branch of Sales Tax Department usually accept an affidavit from the defaulting dealer that “I had done genuine business in past but owing to heavy business loss and financial difficulties in the relevant years (say 2013-14 and 2015-16), for the sake of my livelihood, I had started issuing fake bills of supply of goods and has earned only about small amount of commission on the bill amount to accommodate the purchasing dealers”. Based on such an affidavit the Sales Tax Department make disallowance of set-off claim (under the GST Act ‘Input Tax Credit’) by re-opening the case of various dealers and over and above issue notice of penalty and prosecution also, to the purchasers making the claim of set-off, of taxes paid by him to the Vendor/s by A/c Payee Cheque, in his returns. In such a case, the Sales Tax authority concerned has discretionary powers to impose penalty from NIL to 100% of tax dues and also power to drop the prosecution. Therefore, it will prove to be a root cause of corruption.

3) At present, awareness campaign for common consumers has also been initiated. As a part of the discussion and campaign, the views of the industry, trade and agriculture as well as consumers, traders and merchants including Tax Practitioners, C.As. and Advocates etc., are also being sought by the Finance Ministry in a structured and time bound manner. Hence, all concerned should give their valuable suggestions, if any, for kind consideration by the Union Finance Minister.

4) Therefore, it is a right time to consider by the Central and Local Governments, as a matter of policy, to delete the provision of issuing notice for penalty and prosecution over and above disallowance of the claim of 'Input Tax Credit’ under the Goods and Services Tax Act, 2017.

It is well known that there is wide circulation of black money in the society. Various committees from time to time have estimated the quantum of black money in terms of GDP of the country and the estimate goes as high as up to 40% of GDP. With the intention to check the black money proliferation and circulation in the society efforts have been made by the Government from time-to-time. In this direction an ordinance called “Benami Transactions (Prohibition of the Right to Recover Property) Ordinance, 1988” was promulgated, which was replaced by the Act of Parliament called “Benami Transactions (Prohibition) Act, 1988″. The aforesaid Act provided that no person shall enter into any benami transactions. It was further provided that the beneficial owner will not be entitled to file any claim or suit against the person in whose name the property is held. The Act also provided that all properties held benami shall be subject to acquisition by the Government. The Act, however, did not have comprehensive provisions. Pursuant to the Act, Rules had also not been framed. As a result, the aforesaid Act remained ineffective for a long period, may be for the reason that there was no political will to implement the Act and make the same effective. Subsequently, in the year 2011, a Bill called “The Benami Transactions (Prohibition) Bill, 2011″, was introduced in the Parliament wherein detailed provisions were made in regard to the matter. The Bill, however, could not be passed and it had lapsed. Later on a bill called “The Benami Transactions (Prohibition) Amendment Bill, 2015″, was brought in the Parliament. The Bill after discussions and making certain modifications on the recommendations of the committee became an Act called “Benami Transactions (Prohibition) Amendment Act, 2016″, which amended “Benami Transactions (Prohibition) Act, 1988″. The Act at present is named as “Prohibition of Benami Property Transactions Act, 1988″, and the same has come into force w.e.f. 1-11-2016 pursuant to notification issued by the Government.

The present Act is quite comprehensive and as against only 9 sections in the original Act of 1988, has 72 sections which define the ‘benami transactions’ and also other relevant terms and contain effective provisions to deal with benami transactions. It also contains provisions regarding prosecution and has also provided for mechanism in regard to the relevant matters. Provisions of the Act for discussion purpose can be categorised in following four heads as under:–

(i) Scope of the Act

(ii) Machinery provided under the Act

(iii) Offences and prosecution

(iv) Power of the special courts to deal with offences and prosecution.

Scope of the Act

Section 3 of the Act provides that no person shall enter into any benami transaction. Section 4 provides that no suit, claim or action to enforce any right in respect of any property held benami can be filed or taken against the person in whose name the property is held on behalf of the person claiming to be the real owner and the real owner can also not take any defence based on any right in respect of the property held benami. Section 5 of the Act provides for confiscation of the property by the Central Government. Section 6 provides that benamidar shall not re-transfer the property to the beneficial owner or any other person acting on his behalf, meaning thereby that property cannot be transferred by the benamidar to the real owner or beneficiary. This section, however, has an exception, which was provided in Income Disclosure Scheme, that in case the real owner has declared his undisclosed income under that scheme then benamidar can transfer the property to the real owner before 30-9-2017.

Section 2 of the Act defines the terms like “benami property”, “benami transactions”, “benamidar” and “beneficial owner”. The terms “person” and “property” have also been defined in above section. Definition of above mentioned terms provided in section 2 of the Act are relevant for the purpose of applicability and enforcement of provisions of the Act. “Person” for the purpose of the Act as defined in section 2(24) includes an individual, HUF, a company, a firm, AOP or Body of Individuals and every artificial juridical person. In other words, the term “person” in this Act has been defined on the same lines as has been defined in Income-tax Act and is wide enough to include every person.

The term “property” as defined in section 2(26) of the Act, is also in widest possible term and the definition is as under:

"property" means assets of any kind, whether movable or immovable, tangible or intangible, corporeal or incorporeal and includes any right or interest or legal documents or instruments evidencing title to or interest in the property and where the property is capable of conversion into some other form, then the property in the converted form and also includes the proceeds from the property”.

The term “Benami Property” has been defined in section 2(8) of the Act to mean any property which is a subject matter of benami transaction and also includes the proceeds from such property. The term “benamidar” has been defined to mean a person or a fictitious person in whose name benami property is transferred or held and includes a person who lends his name. The term “beneficial owner” means a person whether his identity is known or not, for whose benefit benami property is held by a benamidar.

The most important definition which is relevant for the purpose of enforcement of the Act is of the term “benami transaction” and it has been defined in section 2(9) of the Act in following words:

“benami transaction” means –

(A) a transaction or an arrangement–

(a) where a property is transferred to, or is held by, a person, and the consideration for such property has been provided, or paid by, another person; and

(b) the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration, except when the property is held by–

(i) A Karta, or a member of a Hindu undivided family, as the case may be, and the property is held for his benefit or benefit of other members in the family and the consideration for such property has been provided or paid out of the known sources of the Hindu undivided family;

(ii) a person standing in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity and includes a trustee, executor, partner, director of a company, a depository or a participant as an agent of a depository under the Depositories Act, 1996 and any other person as may be notified by the Central Government for this purpose;

(iii) any person being an individual in the name of his spouse or in the name of any child of such individual and the consideration for such property has been provided or paid out of the known sources of the individual;

(iv) any person in the name of his brother or sister or lineal ascendant or descendant, where the names of brother or sister or lineal ascendant or descendant and the individual appear as joint-owners in any document, and the consideration for such property has been provided or paid out of the known sources of the individual; or

(B) A transaction or an arrangement in respect of a property carried out or made in a fictitious name; or

(C) A transaction or an arrangement in respect of a property where the owner of the property is not aware of, or, denies knowledge of, such ownership;

(D) A transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious;

Explanation. – For the removal of doubts, it is hereby declared that benami transaction shall not include any transaction involving the allowing of possession of any property to be taken or retained in part performance of a contract referred to in section 53A of the Transfer of Property Act, 1882, if, under any law for the time being in force, –

(i) Consideration for such property has been provided by the person to whom possession of property has been allowed but the person who has granted possession thereof continues to hold ownership of such property;

(ii) Stamp duty on such transaction or arrangement has been paid; and

(iii) The contract has been registered.

The Act provides that no person shall enter into any benami transaction or even get any property transferred in his name or hold the same. The term “benami transaction” has been defined quite in detail. The first limb of the definition is quite important and according to it any transaction or arrangement is benami transaction:–

(i) Where a property is transferred to or is held by a person;

(ii) But consideration for such property has been provided or paid by another person; and

(iii) The property is held for the immediate or future benefit, direct or indirect of the person who has provided the consideration.

The clause, however, excludes genuine family cases like holding of property in the name of spouse or children or in the name of Karta or a member of HUF or in a fiduciary capacity by a trustee, executor, partner or director of a company. If the property is held in the name of brother or sister or lineal ascendant or descendant, exemption is available only if same is held jointly with the individual, who has provided the consideration for the property. A question can be raised that if property can independently be acquired in the name of spouse or children, why there is a condition that property in the name of brother or sister or even in the name of father or mother can only be jointly with the individual providing the consideration and not singularly in their names. The obvious reason for above provision is that normally a person would acquire the property in the name of the spouse or in the name of the children out of his own funds, but he will never acquire the property independently in the name of brother or sister with his own money. He would also normally not acquire property in the name of father or mother unless there is intention to hide the real source of investment or to avoid tax on the income arising there from. In case there is no mala fide intention of the individual in acquiring the property in the names of above-mentioned relations, then he can always consider the amount paid by him for purchase of the property as gift to the person, namely, brother or sister or mother or father and in terms of provisions of section 56(2)(vii) of the Act, such gift will also not be chargeable in their hands. The property or the amount, however, will become their asset and they will be holding the same in their own capacity. Income will be their income and chargeable in their case. In that situation property will not be held by them for benefit of the person providing consideration and, therefore, will be out of purview of "benami transactions" They will have full right to deal with the property in that case.

Other three clauses of the definition of the term “benami transaction” provide that transaction will be deemed to be benami transaction if the property is held in fictitious name or the person in whose name the property is held has no knowledge of such ownership. Further, in order to safeguard the genuine transactions of purchase and sale of property an exception has also been provided that a transaction covered by section 53A of Transfer of Property Act will also not be deemed to be benami transaction in case full consideration for the same has been paid by the buyer to the seller and possession of the property has been taken by the buyer and stamp duty on such transaction has also been paid and the contract has been registered though sale deed has not been executed and registered in favour of the buyer.

It may also be stated that the term “property” for the purpose of benami transaction has been defined very widely and it includes assets of any kind whether movable or immovable, tangible or intangible, corporeal or incorporeal and includes any right or interest of legal documents or instruments evidencing title to or interest in the property. The definition further provides that in case property has been converted in any other form then the property in converted form or sale proceeds of the same will also be deemed to be benami property for the purpose of benami transaction. For the purpose of the Act, the term “benami property” has also been defined which also specifically provides that any property which is subject to benami transaction will be covered by the Act and it shall also include proceeds of such property. Therefore, even if benami property is sold or converted in any other form, one cannot avoid applicability of provisions of the Act and save himself from consequences of being involved in benami transaction since provisions are quite comprehensive, same will cover all “benami transactions”, which are not bona fide transactions.

Machinery provided under the Act

The Act provides for attachment and confiscation of benami property. For the purpose of implementing the provisions of Act, the Act provides for appointment of following authorities :-

(a) The Initiating Authority;

(b) The Approving Authority;

(c) The Administrator; and

(d) The Adjudicating Authority.

The “Initiating Authority” has been defined to mean Assistant Commissioner or Deputy Commissioner of Income-tax. The “Approving Authority” refers to Additional or Joint Commissioner of Income-tax. The “Administrator” means the Income-tax Officer. “The Adjudicating Authority” refers to an Authority appointed by the Central Government. and it shall constitute of a Chairperson and at least two other members. Chairperson or the member of Adjudicating Authority has to be a member of Indian Revenue Service who holds the post of Commissioner of Income-tax or a member of Indian Legal Service who holds the post of Joint Secretary or equivalent post thereto. The Central Government shall appoint the seniormost member to be the Chairperson of the Adjudicating Authority. The powers will be exercised by the Adjudicating Authority through a Bench which may constitute of at least two members.

The Authorities appointed under the Act shall have same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit in respect of discovery and inspection, enforcing the attendance of any person compelling the production of books of account and other documents, issuing summons, receiving evidence on affidavits and any other matter which may be prescribed. All the persons summoned by any of the Authorities appointed under the Act shall be bound to attend in person or through agent as may be directed by the Authority and shall be bound to state the truth and produce such documents as may be required. The Act also provides that officers of various Government departments such as officers of Income-tax Department, officers of Customs & Central Excise Department, officers of Reserve Bank of India and other Banks, officers of Police Department, officers of Stock Exchanges and Securities & Exchange Board of India, officers of other Corporate Bodies of Central or a State Government, etc. shall be bound to assist the authorities to enforce the provisions of the Act. Authorities shall also have the powers to call for information from any person and require production of documents or books of account and also to impound the books or documents.

Section 24 of the Act provides for initiation of proceedings under the Act by the Initiating Authority, Assistant Commissioner or Deputy Commissioner as may be designated. Sub-section (1) of section 24 reads as under:

(1) Where the Initiating Officer, on the basis of material in his possession, has reason to believe that any person is a benamidar in respect of a property, he may, after recording reasons in writing, issue a notice to the person to show cause within such time as may be specified in the notice why the property should not be treated as benami property.

The aforesaid section empowers the Initiating Officer to issue a notice only if :

(i) He has some material in his possession;

(ii) On the basis of such material, he has reason to believe that the person holding the property is a benamidar;

(iii) He should record reasons in writing; and

(iv) Opportunity should be given to show cause why the property should not be treated as benami property.

Sub-section (2) of section 24 also provides where a notice has been issued to the benamidar in respect of the property, a copy of same shall also be issued to the beneficial owner if his identity is known. Further sub-section (3) of section 24 provides that if the Initiating Officer is of the opinion that the person in possession of the property may alienate the property during the period specified in the notice, he may, with the previous approval of the “Approving Authority”, by order in writing, attach provisionally the property in the manner as may be prescribed for a period not exceeding 90 days from the date of issue of the notice.

Sub-section (4) of the section 24 provides that the Initiating Officer shall make such enquiries and call for such reports or evidence as he may deem fit and after considering of relevant material shall within a period of 90 days take a decision whether proceedings have to be taken further in respect of the property or not. In case he has come to a conclusion that no further proceedings are necessary, he shall pass the order accordingly with the prior approval of “Approving Authority” (Additional or Joint Commissioner) and in case the property had been provisionally attached earlier; he shall revoke the attachment. In case he comes to the conclusion that proceedings need to be further continued, he shall pass an order with the prior approval of “Approving Authority” to continue with the provisional attachment or to provisionally attach the property till the matter is decided by the Adjudicating Authority. The Initiating Officer shall within a period of 15 days from the date of his passing the necessary order for continuing the proceedings shall draw up a statement of facts and refer the matter to the Adjudicating Authority.

The Adjudicating Authority on receipt of reference from the Initiating Officer shall issue a notice to the benamidar, beneficial owner or any other interested party, including a banking company or a person having any interest in the property for furnishing such documents, particulars or evidence as may be necessary on a date to be specified in the notice. The notice shall be issued by the Adjudicating Authority within a period of 30 days from the date on which a reference has been received from the Initiating Officer. It has further been provided that the notice shall provide a period of not less than 30 days to the person to whom the notice has been issued to furnish the information sought. In case the property is held jointly by more than one person, notice shall be issued to all persons holding the property. It has, however, been provided that in case notice is served on any of the persons, service shall not be deemed to be invalid on the ground that such notice has not been served to all the persons holding the property. The Adjudicating Authority after considering the material and evidence as may be submitted by the parties concerned, shall pass an order within a period of one year from end of the month in which reference was received from the Initiating Officer holding whether property is in the nature of benami property or not. In case it is held not to be benami property attachment order shall be revoked. In case it is held to be benami property attachment order shall be confirmed. Section 27 of the Act further provides that in case an order has been passed by the Adjudicating Authority holding the property to be benami property, a further order shall be passed by the Adjudicating Authority for confiscating the property after giving an opportunity of being heard to the person concerned. Once the order for confiscation has been passed and the rights and title in such property shall vest absolutely in the Central Government free of all encumbrances and no compensation shall be payable in respect of such confiscation. Any right of any third party created in such property with a view to defeat the purpose of this Act shall also be deemed to be null and void. It has, however, been provided in sub-section (2) of section 27 that if any person has acquired the property from the benamidar for adequate consideration, prior to issue of the notice by the Initiating Officer without having knowledge of the benami transaction, the Adjudicating Authority shall have no power to confiscate such property.

The Act also provides for filing of appeal against the order passed by the Adjudicating Authority for confiscation of the property to the Appellate Tribunal. In case an appeal has been filed, the order of confiscation passed by the Adjudicating Authority shall be subject to the order of the Appellate Tribunal. For the purpose of the Act, the Central Government has the power to constitute an Appellate Tribunal for hearing the appeals against the orders of the Adjudicating Authority and the Appellate Tribunal shall constitute of a Chairperson and at least two other members of which one shall be a Judicial Member and other shall be Administrative Member. Judicial Member shall be a member of Indian Legal Service who holds the post of Additional Secretary or equivalent post. Administrative Member shall be a member of Indian Revenue Service who holds the post of Chief Commissioner of Income-tax or equivalent post. Chairman of Appellate Tribunal shall be either a sitting or a retired judge of a High Court who has completed not less than five years of service.

It may be stated that the Central Government has not appointed separate Adjudicating Authority and Appellate Tribunal under the provisions of this Act and vide Notification dated 25-10-2016, it has been notified that the Adjudicating Authority and the Appellate Tribunal established under the provisions of the Prevention of Money Laundering Act, 2002, shall discharge the function under this Act until separate authorities are appointed by the Central Government under this Act.

Section 49 of the Act further provides that any party aggrieved by any decision or order of Appellate Tribunal may file an appeal to the High Court within a period of sixty days from the date of communication of the decision or order of the Appellate Tribunal to him on any question of law arising out of such order. The High Court, however, can condone the delay in filing the appeal. In case the Hon’ble High Court is satisfied that a substantial question of law is involved, it shall admit the appeal and formulate the question. The High Court on hearing the matter may pass such order as it may deem fit in appeal filed before it.

Section 28 of the Act provides for management of property confiscated by the Government. The Administrator appointed under the Act, who will be the designated ITO, shall have the power to receive and manage the property. He is empowered to take such measures as may be necessary and as may be directed by the Central Government to dispose of the property vested in the Central Government in such manner and subject to such conditions as may be prescribed. On passing the order of confiscation the Administrator shall issue a notice in writing to the person who is in possession of the benami property to surrender or deliver the possession of the same to the Administrator or any other person authorised by him in writing in his behalf within a period of seven days of the date of service of the notice. He is also empowered to take service of any police officer to assist him in taking the possession of the property.

It may be stated that the powers under the Act have been provided to Income-tax authorities to enforce the provisions of the Act and proper safeguards have been provided in section 24 of the Act for issuing the notice for initiating the proceedings. There are due checks provided in the form of prior approval of Approving Authority and for passing the order by the Adjudicating Authority. It is also important that time limits have been provided under the Act for giving notices and passing the orders by different authorities and accordingly, a time bound procedure has been provided under the Act. Necessary safeguards have been provided in the form of making a provision for appeal to Appellate Tribunal and thereafter to the High Court. Hence, it can be stated a due balance has been maintained while making the provisions in the Act between achieving the purpose of the Act and also avoiding hardships in case of bona fide transaction. It is hoped that machinery appointed under the Act shall also act reasonably while implementing the provisions of the Act.

Offences and prosecution

Apart from confiscation of benami property, sections 53 to 55 of the Act also provide for prosecution of the persons involved in benami transactions. Section 53 provides that where any person enters into a benami transaction in order to defeat the provisions of any law or to avoid payment of statutory dues or to avoid payment to creditors, the beneficial owner, benamidar and any person who abates or induces any person to enter into a benami transaction shall be guilty of the offences of benami transaction. Further the section provides that whoever is found guilty of offences of benami transaction, he shall be punishable with a rigorous imprisonment for a term which shall not be less than one year, but which may extend to 7 years and shall also be liable to fine which may extend to 25% of the fair market value of the property. Section 54 of the Act provides that any person who is required to furnish information under this Act knowingly gives false information to any authority or furnishes any false documents in any proceedings under this Act, shall be punishable with rigorous imprisonment for a term which shall not be less than 6 months, but which may extend to 5 years and shall also be liable to fine which may extend to 10% of the fair market value of the property. Section 55 of the Act provides that no prosecution shall be instituted against any person in respect of any offence under the Act without the previous sanction of Central Board of Direct Taxes.

It is stated that provisions of the Act are quite stringent and any person who is involved in benami transaction or any person who abets or induces such transaction shall be liable for the prosecution. Accordingly, even a Chartered Accountant or Legal Consultant who advises or induces the client to enter into a benami transaction shall be liable for the prosecution under the Act.

Power of the Special Courts

Section 50 of the Act provides that the Central Government in consultation with the Chief Justice of the High Court shall designate one or more Courts of Sessions as special court or courts for respective area or for group of cases for the purpose of trial of offences punishable under the Act. Such special courts shall have all the powers under the Code of Cr. Procedure, 1973. Such designated courts shall take cognisance of any offence on a complaint in writing made by any authority appointed under the Act or any officer of the Central or State Government authorised in this behalf. With a view to have quick disposal of the matters it has also been provided that such courts shall make every endeavour to conclude the trial within a period of 6 months from the date of filing of the complaint. Section 51 of the Act provides for appointment of Public Prosecutor conducting the cases on behalf of the authorities.

Section 52 of the Act also provides for appeal to the High Court against the order passed by the special court.

In conclusion, it is stated that provisions of the Act appear to be quite effective for the purpose of checking the benami transactions and as a result thereof to check evasion of tax and black money circulation in the society. It can be expected that provisions of the Act will be implemented earnestly and with all fairness to achieve the purpose of the Act as well as not causing hardships in bona fide cases.

All power is within you; you can do anything and everything. Believe in that, do not believe that you are weak; do not believe that you are half-crazy lunatics, as most of us do nowadays. You can do any thing and everything, without even the guidance of any one. Stand up and express the divinity within you.

– Swami Vivekananda

Society does not go down because of the activities of criminals, But because of the inactivities of the good people.

1.1 The Income-tax Act is an All India statute. It has its own mechanism and methodology for levy, recovery and collection of taxes. The Income Tax Authorities who are empowered under the Income-tax Act, 196 l ("the Act") have got certain powers which are conferred to them under the Act. However, there are certain areas where for the purposes of proper execution of the Act and the proceedings thereunder resort has to be made to other allied Acts.

1.2 It is therefore essential that certain methodologies and procedures prescribed under Evidence Act, Civil Procedure Code, 1908 ("CPC"} and the Limitation Act come into play.

1.3 At the outset, it must be clarified that if a procedure is prescribed under the Income-tax Act, the same is required to be followed. It is only in the absence of a particular procedure which is required to be followed that the Income Tax Authorities have to fall back upon and rely upon other allied laws.

1.4 There are certain provisions in the Income-tax Act where a specific reference is mentioned about the Evidence Act, CPC and Criminal Procedure Code ("Cr.P.C."}. It is in this connection that various angles of evidence and CPC are examined in this article.

2. Presumption and Probable Consequences

2.1 One of the important issues of prime importance in connection with the Law of Evidence and Cr.P.C. as well as CPC is to examine the import and meaning of the words "presumption" and "probable consequences".

2.2 In Black's Law Dictionary it has been defined to mean 'to believe or accept upon probable evidence'. In Shorter Oxford English Dictionary it has been mentioned in law 'presume' means 'to take as proved until evidence to the contrary is forthcoming', Stroud's Legal Dictionary has quoted in this context a certain judgment according to which 'A presumption is a probable consequence drawn from facts {either certain, or proved by direct testimony} as to the truth of a fact alleged'. In Law Lexicon by P. Ramanath Aiyer the same quotation finds place at p. 1007 of 1987 Edn.

The aforesaid shows that if on the basis of materials on record, a court could come co the conclusion that commission of the offence is a probable consequence.

2.3 Section 132(4A) lays down a rule of "presumption". It is presumed that whatever is found during the search, the ownership is that of the "occupant".

This rule of presumption is intended with the sole purpose that the raiding party would seize the assets where there is no proper explanation forthcoming.

2.4 This does not mean that what is good at the time of search would also be through for the purposes of assessment. Assessment proceedings are different from action and enquiry at the time of search. In an assessment proceedings, necessary enquiry is required to be made. The presumption raised in Section 132(4A) would be an important piece of evidence, but that ipso facto would not justify an addition in the assessment without reference to a proper enquiry as to the nature of the transaction. Thus, in an assessment proceeding, it is essential that the presumption is rebutable and fresh light could be thrown on the same.

Thus, the proposition which emerges is that presumption is total and absolute so far as Section 132(4A) r.w. Section 132(5) is concerned, but so far as assessment proceedings are concerned, it is only a "rebuttable presumption".

2.5.1 It is necessary at this stage to analyse the scheme of Section 132 regarding search and seizure. Section 132(1) deals with issue of summons, power to enter and search premises, to break open lock, door, safe, box where keys are not available. It also provides for power to seize books of account, documents, money, bullion, jewellery or other valuable articles or things found on the premises.

Section 132(2) provides for requisition of any Police Officer or officer of the Central Government, or both for the purpose of search and seizure action. Section 132(3) provides that where the documents or articles cannot be removed then a direction or order is issued not to remove or part with or otherwise deal with the same. Section 132(4) provides for recording statement and the same can be used as evidence in any proceedings under the Act. The explanation gives a wide scope that the examination is connected with any matter of investigation connected with any proceedings. Section 132(4A) provides a rule of presumption with regard to accounts, documents, money, bullion, jewellery, etc. found and are in control and possession of any person. It also provides for a legal presumption regarding the truthfulness of documents, books of account and signatures. Section 132(5) provides for an order being passed under the Act.

2.5.2 The object of Section 132 is to unearth undisclosed income of an assessee and to levy tax thereon. Search and seizure is one of the recognised methods therefore adopted for bringing to tax the undisclosed income of the assessee. On a conjoint reading of sub-section (4) and sub-section 4A) of Section 132, it appears that the restriction as to presumption is not restricted only to action connected with search and seizure, but the same may have application to other provisions of the Act.

2.5.3 Thus a proposition which could be agitated is that the presumptive value is total so far as Section 132(5) is concerned, but for other proceedings it has a persuasive value and the same is a rebuttable presumption.

2.5.4 Section 132(4A) was introduced by the Taxation Laws (Amendment) Act, 1975, w.e.£ 1-10-1975. It raises a presumption in respect of the contents of books of account and other documents. This presumption is linked with what is found at the time of search and seizure. Sections 132A and 132B provides an integrated scheme laying down the procedure for search and seizure along with the powers of confiscation of assets.

Thus, it could be argued that the presumption must be held to be applicable only in relation to adjudication as per Section 132(5).

2.6 At this stage, it is necessary to examine the said Section 132 in the light of Section 106 of the Evidence Act. As per Section 106 of the Evidence Act, the Department is deemed to have discharged its burden if it adduces only so much evidence, circumstantial and direct, as is sufficient to raise a presumption in its favour as regards the existence of particular articles and things found at the time of search.

This can be illustrated by way of two examples, quoted from the decision of the Supreme Court in Collector of Customs v. D. Bhoormal, AIR 1974 SC 859. Once it is shown that the accused was travelling without a ticket, a prima facie case against him is proved. If he once had such a ticket and lost it, it will be for him to prove this fact within his special knowledge. Similarly, if a person is proved to be in recent possession of stolen goods, the prosecution will be deemed to have established the charge that he was either the Chief or had received those stolen goods known them to be stolen. If his possession was innocent and lacked the requisite incriminating knowledge, then it will be for him to explain or establish those facts within his peculiar knowledge, failing which the prosecution will be entitled to take advantage of the presumption of fact arising against him, in discharging its burden of proof.

Attention is invited to the decision of Chuharmal v. CIT (1988) 172 !TR 250 (SC) where it was held that the Evidence Act does not apply to proceedings under the Income-tax Act. The Supreme Court pointed out that the rigours of rule of evidence contained in the Evidence Act were not applicable to the Income-tax Act, but on first principles and on general law, the principles of Evidence Act can be applied to proceedings under the Income-tax Act.

2.7 However, there is one exception that the presumption in terms of Section 132(4A) is not applicable in cases of prosecution under Section 276C and 277. The Supreme Court inPrem Dass v. ITO (1999) 236 ITR 683 (SC)held that the presumption laid down in Section 132(4A) cannot be applied to criminal proceedings in view of the specific language mentioned in Sections 276C and 277 of the Income-tax Act. Section 276C requires that it must be established that there is wilful attempt to evade any tax and hence rhe doctrine of mens rea is still required to be proved by the prosecution. Thus in matters of prosecution u/ss. 276 and 277 of the Income-tax Act, the rule of presumption would not operate, but the doctrine of mens rea would still prevail.

2.8.1 In juxtaposition with Section 132(4A), it is also necessary to analyse the provisions of Section 68 of the Act. Section 68 requires that where any sum is found credited in the books of an assessee for any previous year, and the assessee offers no explanation about the nature and source or offers explanation which in the opinion of the Assessing Officer is not satisfactory, then the sum so credited may be charged to income tax as the income of the assessee for that previous year.

2.8.2 Section 68 is of general application and applies to all cases of regular assessment. The presumption in Section 132(4A) that, "the contents of such books of account and other documents are true" applies only in relation to the provisions contemplated under the said Section and the Order passed under Section 132(5). Section 68 operates in a different field and, therefore, the requirements of Section 68 are required to be fulfilled, even where cash credits are found in the books seized under Section 132(4A).

2.8.3 The rule of evidence prescribed in Section 132(4A) raises a presumption that the contents in books of account and documents are "true" and that the documents in the handwriting of the person can be presumed to be of such person. Thus where there are entries or borrowings reflected in the books in the assessee's own handwriting, a presumption can be raised as to the genuineness by the Department without any further claim to support the same. However, Section 68 would still require an explanation as to the nature and source of every cash credit. Thus the presumption cannot be operated automatically. It would also imply that Section 132(4A) does not override Section 68.

It applies that there are two conflicting rules of evidence in Section 132(4A) and Section 68 and that there is a need to reconcile the same, more particularly with reference to genuineness of the same.

The issue that would arise is (a) that the handwriting in which the amounts are wtitten is presumed to be of the assessee and that (b) there is no reason why an assessee should make false entries in his books. However, while Section 132(4A) may give rise to presumptions, Section 68 would still give a chance and an opportunity to an assessee to rebut the same, explain the nature, the source and surrounding circumstances of such writings.

2.9 As to whether Section 132(4A) would apply or not, would all depend upon the facts of each case.

The question which therefore arises is whether it could be said that a question of law arises?

The Tribunal is the final fact-finding authority. A decision on fact can be gone into by the High Court, only if a question has been referred co it, stating that the finding of the Tribunal on facts is perverse. InK. Ravindranathan Nair v. CIT (2001) 247/TR 178 (SC), the Supreme Court held chat when a finding of fact made by the Tribunal is challenged as being perverse, a question of law can be said to arise. In Omar Salay Mohammed Sait v. CIT (1959) 37 /TR 151 (SC), it was held that a question of law arises if the Tribunal has improperly rejected the evidence. Rejection of evidence, which is material converts a question of fact into a question of law. Where the Tribunal has relied upon partly relevant and partly irrelevant materials and it is not possible to find out what influenced the mind of the Tribunal, the finding is vitiated because of use of irrelevant materials, which give rise to the question of law:Dhirajlal Giridharilal v. CIT (1954) 26 ITR 736 (SC) andCIT v. Daulat Ram Rawatmull (1973) 87 ITR 349 (SC). Where the Tribunal has ignored essential matters and evidence a question of law arises, CIT v. Radha Kishan Nandlal (1875) 99 ITR 143 (SC).

Thus, in such circumstances, a question of law can still arise based on the above parameters even though the entire matter may be essentially factual.

3. Presumption however strong cannot take place of evidence rule of estimation is no substitute for evidence

3.1 In D.N. Kamani (HUF) v. DCIT (2000) 241 !TR 85 (Trib) (Patna), there was a search on the assessee who was a property developer. The raiding party came to the conclusion that the assessee had received on-money on sale on certain transactions which was recorded.

3.2 The Assessing Officer estimated the income on the basis of other sale instances of property.

3.3 The assessee's case was that there is no cogent proof of receipt of on-money and that the A.O. has no power "to estimate" income under Block Assessment. That the power of estimation is restricted only to Section 145 and is not available in Block Assessments. There was difference of opinion between the two Members of the Tribunal. Thus the matter was referred to a Third Member.

3.4 In this case, it was held that in absence of any evidence of receipt of on-money, it is not possible to make an addition merely on the basis of "doubt". That the assessee may have received some on-money.

The Tribunal further held that Sections 68, 69, 69A, 69B and 69C have a mention under Block Assessment, while there is no reference to Section 145 under Block Assessment. In view of the above, the Tribunal held that the question of estimation cannot arise in Block Assessments.

The Tribunal further held that presumption, however, strong, cannot be a substitute, nor can it rake the place of evidence.

3.5 This issue can also be approached from the angle that the assessee in sale transactions of property has received amounts over and above the apparent consideration.

3.6 In Indore Construction Pvt. Ltd. v. ACIT (1999) 71 ITD 128 (Ind.), it was held that where the A.O. had referred the matter to Valuation Cell to ascertain the investments made by the assessee and thereafter applied Section 69 and added the amount as unexplained investments, the action of rhe A.O. was treated as beyond the scope of Section 158BB.

3.7 That the Department normally presumes chat no purchase of flats is made in city like Mumbai, without payment of on-money. Such suspicion is of no avail and in the absence of evidence to establish such on-money payment no addition can be made purely on estimation and suspicion:Ramakant Umashankar Khetan v. ACIT (2000) 66 TT] 378 (Nag.).

Similarly, the A.O. cannot estimate and place a higher sale consideration based only on estimation and suspicion. In absence of cogent evidence arbitrarily taking and guessing larger apparent consideration is unsustainable in law:Pankaj Dayabhai Patel (HUF) v. ACIT (1999) 63 TT] 790 (Ahd.).

3.8 Thus, estimation has no place in Block Assessment and even in regular assessment, mere presumptions and suspicions cannot hold good. Participants may discuss to what extent estimation theory is valid in regular assessments.

4. Evidence Act and Criminal Procedure Code with reference to penalty

4.1 The fundamental principle for the levy of penalty is that the penal proceedings are quasi-criminal in nature. They are distinct, separate and independent of the assessment proceedings. So far as penalty is concerned, the rules of natural justice and the issues for consideration of facts and circumstances and the relevant evidences collected have to be taken into consideration.

4.2 Every person against whom penal action is sought to be proceeded with has as in criminal and civil law an inherent right to explain the facts and circumstances of the case "to prove his innocence" and consequencly the tax authorities are bound to consider the evidences in the circumstances which are placed before the tax authorities which are required to be exercised judiciously.

4.3 As in criminal law, in absence of any "incriminating material" found in the course of search and seizure operation, no income can be assessed under the provisions of Chapter XIV-B.

4.4 The concept of mens rea is peculiar and applicable strictly in criminal law but the same cannot be strictly imported under the Income- tax Act more particularly with reference to levy of penalty. The theory of onus is both on the revenue as well as on the assessee. The onus is not on the revenue either to prove the guilty mind or the sufficient cause on the part of the assessee. The onus is entirely on the assessee to prove his bonafides on the basis of facts and circumstances of the case. If the assessee can discharge such onus, then there can be no levy of penalty :Gujarat Travancore Agency v. CIT (1989) 177 ITR 455 (SC).

5. Where certain parts are deleted in a complaint, can fresh complaint be filed

5.1 Issue for examination is that where certain parts in a complaint are quashed and certain offences are also quashed, whether a complaint is required to be withdrawn and a new complaint is required to be filed after deleting the portions which are struck off and whether fresh evidence is required to be let in?

5.2 The issue is that when a prosecution is launched which has a number of sections contained in the Indian Penal Code and the Criminal Procedure Code and its certain sections and charges are brought at a preliminary stage. If complaint is required to be filed and what would be the position of the evidence already collected.

5.3 InKumudini Subhan v. Chief Commissioner (Administration) (1992) 198 ITR 390 (Mad. HC), it was held that there is no need to withdraw the complaint and file a fresh complaint at all. Thus here the provisions of the Criminal Procedure Code were taken into consideration and followed and applied in a prosecution case launched under the I.T. Act.

6. Primary facts and material evidence with reference to reassessment

The ambit and the scope of primary facts with reference to reassessment was explained by theSupreme Court in Phool Chand Bajarang Lal v. ITO (1993) 203 ITR 456 (SC).

"One of the purposes of Section 147 appears to us to ensure that a party cannot get away by wilfully making a false or untrue statements at the time of original assessment and when that falsity comes to notice to turn around and say 'you accepted my lie… now your hands are tied and you can do nothing'. It would be a travesty of justice to allow the assessee that latitude."

6.2 Income-tax Act is a taxing statute. The provisions of the Act had to be construed strictly. The Assessing Officer can assume jurisdiction to reopen completed assessment under Sections 147 and 148 only if there is material evidence and "reason to believe" that there is suppression of primary facts.

6.3 The expression "reason to believe" relates to a process of entertaining an opinion which is subjective in nature, and is not liable to be scrutinised by the objective test of judicial scrutiny in Appeal. It is only when the subjective satisfaction is wrongly and arbitrarily exercised that the Court would interfere in reassessment proceedings.

6.4 In Barium Chemicals Ltd. v. Company Law Board (1966) 36 Company Cases 639, it was observed, "If it is shown that the circumstances do not exist or that they are such that it is impossible for any one to form an opinion, therefrom suggestive of the aforesaid things, the opinion is challengeable on the ground of non-application of mind or perversity or on the ground that it was formed on collateral grounds and was beyond the scope of the statute.

6.5 The Supreme Court in Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC), laid down that it is a duty of the assessee to disclose all primary facts, the duty to find inferential facts from primary facts disclosed and the duty to draw inferences of law from such facts is the duty of the Assessing Officer. The assessee is only bound and required to disclose all the facts fully and truly.

6.6 In ITO v. Lakhmani Mewef Das (1976) 103 JTR 137 (SC),the Supreme Court observed that all that the assessee is required is to make true and full disclosure of primary facts at the time of original assessment. Production of account books and other evidence from which material could be with due diligence be discovered by the A.O. does not amount to disclosure contemplated by law. The duty of the assessee does not extend beyond making full disclosure of primary facts. Once this is done, his duty ends and it is for the A.O. to draw correct inference from primary facts. Question arises whether such inferences drawn from facts would amount to presumption, conjectures and surmise on the basis of which re opening can be justified? Question further arises is that all the primary facts are disclosed and material evidence is produced, can the Assessing Officer draw adverse inference so as to reopen completed assessment based on such evidence produced by the assessee?

6.7 In Ganga Saran and Sons Pvt. Ltd. vs ITO (1991) 130 ITR 1 (SC), the Supreme Court observed that the words "reason to believe 'are stronger than the words reason to be satisfied". Since the words used are reason to believe the satisfaction theory would not apply but the belief must be reasonable and based on relevant materials.

6.8 InIndian Oil Corporation v. ITO (1986) 159 ITR 956 (SC), the ratio can be summed up as: 1) there is obligation for the assessee to disclose all primary facts; 2) those facts should be relevant and material; 3) there must be full disclosure and it must be proved; 4) what facts are material and necessary will depend on the facts of each case; 5) it is the duty of the assessee to disclose all facts so that the A.O. can come to a conclusion, or form a belief 6) based on those facts the A.O. has to draw inference and form a belief whether reopening could be justified.

6.9 Issues for discussions would therefore be:

(a) Subjective versus objective satisfaction;

(b) What is primary facts;

(c) What are relevant documents and material evidence;

(d) Whether inference drawn from facts could constitute a belief for reopening;

(e) What is the rest to be applied for the belief; and whether reasons are to be given;

(f) To what extent there is falsity for non-disclosure;

(g) Whether the non-disclosure was intentional or deliberate;

(h) Whether events and situation arising subsequent to the filing of the return can be regarded as material evidence for reopening, since at the time of filing the return all primary facts were disclosed.

7. Should secret and confidential documents relied on by the department be furnished to the assessee

7.1 Section ll9(2)(a) provides that the CBDT can issue directions or instructions and guidelines regarding assessment, collection of revenue, initiations of proceedings, penalty and such other orders as is necessary in public interest. Rule 111B of the LT. Rules, 1962 further provides that the Board may publish the instructions and send necessary copies to organisations. The instructions which are published are regarded as "Circular". But sometimes certain "instructions" are issued only for Departmental officers.

The issue which arises is can the Department rely upon such instructions without disclosing the same to the assessee?

7.2 In Capricorn Shopping Complex v. ITO (1996) 218 ITR 721 (Ker.), the valuation of the building was done according to secret instruction No. 671 issued by the Board. The assessee was not furnished with the copy of the instructions on the ground that it was secret and not meant for public.

The Kerala High Court in(1996) 218 ITR 721 at page 723, observed "that if some document is relied on against an assessee to assess him to a high rate of tax, the documents shall be disclosed to him. It cannot be withheld".

7.3 Based on the above case law, can an assessee insist on instructions, documents, valuation report or other evidences on which reliance is placed by the Department? If such documents are not furnished, what would be the remedy of the assessee?

7.4 In this connection, attention is invited where an admission is made by a person, then the document which is sought to be used against the assessee, must be furnished and explained. Further, a right of cross-examination should also be provided. The Supreme Court laid down that admission is to be proved in accordance with the provisions of Evidence Act and due opportunity must be given for explanation, cross-examination and verification of documents : AIR 1977 SC 1712.

7.5 In Pooran Mal v. Director of Investigation 93 ITR 505 (SC) it was held that even when search and seizure was held to be illegal, yet documents and other papers seized would have "evidential value". However, theSupreme Court in Pratap Singh v. Director of Enforcement 155 !TR 166 (SC)held that the illegality in the method, manner or initiation of search, does not necessarily mean that anything seized during the search has to be returned.

7.6 In the light of two judgments of the Supreme Court where the search itself is illegal, would documents seized be of any relevance? If the search is per se held to be not in accordance with the provi ions of Law, then the entire operation should be regarded as an act of an illegality and hence everything found or relied upon cannot be considered, but ought to, be returned forthwith.

7.7 In this connection, it may be useful to refer to the decision of the Supreme Court inCIT v. Vindhya Metal Corporation 224 ITR 614where it was held that presumption under Section 132(4A) would also apply to documents requisitioned and assets found. However, the fact that an asset is seized is not enough, it must further be shown that it was not disclosed for tax purposes. It is necessary to reconcile this decision with the ratio of the above two judgments.

8. Retraction of statements recorded and affidavits

8.1 Very often statements recorded at the time of search and seizure are retracted claiming that the statement has been obtained under pressure and duress or mistaken impression. An Affidavit in this connection is filed with the Department. An attempt is made to find out the evidentiary value of such retraction by an Affidavit.

8.2 Under the Evidence Act, admissions are treated as admitted fact, they may not be conclusive proof of the matter, but they may operate as "estoppel in further proceedings" – Section 31 of Evidence Act.

8.3 Admissions give rise to rebuttable presumptions and can be rebutted on the grounds that the confession was made by inducement, threat or promise – Section 24 of the Evidence Act.

8.4 The Bombay High Court in R.R. Gavit v. Sherbanu Hassan Daya (1986) 161 ITR 793 held that the power to interrogate on oath under Section 132(4) is limited only with respect to explanation of documents, articles or things found during search. However, the effect of this decision seems to be nullified by insertion of Explanation to the Section w.e.f 1st April, 1989.

8.5 The rule of rebutable presumption of the Evidence Act is itself embodied in Section 132(4) by the words "may thereafter be used in evidence in any proceedings". This would mean that the statement recorded is a piece of evidence which can be used against the assessee, but the assessee has got a right to rebut the admission made by him. This is further supported by the fact that admission though regarded as a piece of evidence, is not conclusive proof by itself.S. Arjtm Singh v. CWT (1989) 175 ITR 91 (Del.).

8.6 InPullanagade Rubber Produce Ltd. v. State of Kerala (1973) 91 ITR 18, it was held that retraction is permissible in law and it is for the assessee to show that the statement recorded is incorrect. Further, in Satinder Kumar v. CIT (1977) 106 ITR 64 (HP), retraction is possible where the assessee states that he was under a mistaken understanding of the true position and state of affairs.

8.7 However, reliance is placed on the decision of Deepchand and Co. v. ACIT (1995) 51 TT] 421 (Bom.)where it was held that where the search continued for unduly long period, statements made can be retracted on the grounds that the statements were recorded under pressure and force. This authority is of particular significance since very often search and seizure actions continue throughout the night, any confessional statements are thereafter recorded under pressure. It is essential, therefore, that CBDT should come out with Circulars or instructions that no search shall continue after sunset and this rule must be strictly enforced. The assessee can argue that statements recorded late at night was not given in a proper frame of mind and that the statements were given under mistaken belief of law and fact.

8.8 Retraction when made on an Affidavit should have value and must be considered as an important piece of 'evidence'. Sworn Affidavits which are duly notarised would therefore retract the statement and a plea could be made to once again record fresh evidence thereafter.

8.9 In this connection a question would arise that if during the course of search the assessee agrees to make a disclosure and based on that disclosure, the raiding party stops further action. Subsequently, the assessee retracts his statement. Can the Department make an addition on the statement made by the assessee which is retracted and at the same time, no further search and investigation was done based on such admission?

8.10 Would it make a difference if retraction statement in the form of an Affidavit is not given immediately (may be, because of fear) but such Affidavit is submitted for the first time at assessment? Distinction should be made between retraction made immediately after search and retraction at the time of assessment which is after lapse of considerable time.

8.11 Attention is invited to the case of Monga Metals Pvt. Ltd. v. ACIT 67 TT] 247 (All.) where Block Assessment made by placing reliance on evidence of third party, without giving assessee an opportunity to cross-examine the third party is a nullity.

9. Cross-examination

9.1 It is necessary in the interest of justice that all relevant evidence must be submitted, the party must be informed on the evidence on which reliance is placed and to allow witnesses to be questioned and to allow evidence and cross-­examination on the same.

9.2 Any statement which is recorded by the Department, an assessee is entitled to get the copy of the statement so recorded, using evidence behind the back of the assessee is against the principles of natural justice. Also where copies of reports or documents or statement of third party is relied upon for making an addition, it is the duty of the Department to allow the assessee not only to examine such documents but also to cross-examine the party.

9.3 In State of Kerala v. K T. Shaduli Yusuf (1977) 39 STC 478, the Supreme Court held that not only it is the duty of the Department to provide copies of statements or reports, but the assessee is entitled to seek right of cross-examination.

9.4 The Supreme Court in Kishan Chand Chellaram v. CIT (1980) 125 ITR 713 (SC)held that evidence which is used against the assessee must be provided to the assessee and also an opportunity to confront the same should be given permitting cross-examination,

9.5 The right of cross-examination is an inherent right and the assessee has also got a right to have his Advocate present at the time of cross­-examination.

9.6 Sometimes it appears that the assessee has made a statement based on ignorance. However, such a statement turns out to be false at a subsequent stage. It may be noted that when the statement was recorded originally, it was made to the best of his knowledge and on ignorance of facts in such circumstances, since there is no mens rea penalty cannot be levied. In Union of India & Others v. Ganesh Das Bhojraj (2000) 244 ITR 691 (SC], the assessee imported consignment of pulses and claimed clearance of goods free of customs duty on the ground of notification which was issued earlier. It appears that on the date of import, a new Notification came whereby basic duty at 25% was imposed. The assessee pleaded that he was not aware of the Notification and that the Notification was not made available to the public on that day. The Supreme Court in this case held that if the Notification is published on a particular date, it is presumed to have been known to the Public. However, it was pointed out that non-availability of Gazette is a defence plea of ignorance where mens rea is an ingredient of an offence which calls for leniency in punishment. This case lays down the proposition that if an assessee has acted in ignorance based on set of circumstances and facts at a particular point of time, when the plea was recorded, in absence of mens rea he cannot be necessarily held guilty or be prosecuted.

9.7 In CIT v. L.KS. Ganee (2001) 244 ITR 130 (Mad.), in this case the Tribunal judicially noticed the features of Lottery business and came to the conclusion that in Lottery business, it is not possible to have proper accounts as there are large number of hawkers and petty traders.

9.8 The Madras High Court while relying upon Section 56 of the Indian Evidence Act, 1872 which prescribed facts judicially noticeable need not be proved and Section 157 which provides the necessary and requisite facts of which Courts must take judicial notice came to the conclusion that the Tribunal had acted arbitrarily.

9.9 This authority is quoted for the proposition that in view of Sections 56 and 57 of the Indian Evidence Act, facts which are judicially noticeable need not be proved and there is no need for any examination or cross-examination on proved facts.

9.10 This is further based on the facts that once an admission is made by the assessee, that certain amounts be added to his income and that the same is concealed income, if this be the accepted position, then by virtue of Section 58 of the Indian Evidence Act such admitted facts need not be proved.

9.11 It is only where facts are disputed and reliance is made on certain documents or statements of third party are controverted that there is a need to submit the document and cross-examine the parties.

10. Evidence Act and onus – section 110 of the Evidence Act and section 69 of the Income-tax Act

10.1 Section 110 of the Evidence Act assumes importance with reference to Section 69A of the Income-tax Act. In CIT v. K T.M.S. Mohamood (1997) 228 ITR 113 (Mad) at p. 119, the issue was whether currency recovered from the premises of the assessee belonged to the assessee or not. Issue was also whether the Department has to establish that the assessee is the owner of cash fund. It was the contention of the assessee that this cash fund did not belong to him. The Madras High Court relied upon Section 110 of the Evidence Act and came to the conclusion that the onus is on the person who is in possession of money to show that he is not the owner of the same. The Court held that the burden is not on the Department but it is on the assessee who is the owner of the amount found in possession at the time when the currency was recovered. Thus, in this case, the Court relied upon the provisions of Section 110 of the Evidence Act.

10.2 In Chuharmal v. CIT (1988) 172 ITR 250 (SC), wrist watches were seized from the bedroom of the assessee. It was the case of the Department that the assessee was the owner of the watches which was denied by the assessee. In this case, the Supreme Court relying upon Section 110 of the Evidence Act came to the conclusion that the tests laid down in Section 110 that when the question is whether any person is the owner of anything of which he is shown to be in possession, the onus of proving that he is not the owner is on the person who affirms that he is not the owner. At page 255, the Supreme Court applied the provisions of the Evidence Act to Section 69 and came to the conclusion that the onus to prove is on the assessee based on the criteria laid down in the Evidence Act.

10.3 Thus, under these circumstances, it is absolutely essential that the provisions of Evidence Act will have to be considered. In this connection, attention is also invited to the recent decision of Sukh Ram vs ACJT (2006) 285 ITR 256. In this case, pursuant to search and seizure cash was found in possession of the assessee. Burden of proof was on the assessee to prove that he is not the owner of the currency. Assessee stated that the cash found belonged to political party but made no efforts to substantiate the statement. The President and Treasurer of the party denied any connection with the cash found nor was there any entry noted in the books of account of the political party. Based on the above, it was held that the assessee has not been able to rebut the presumption and therefore, the addition under Section 69A was justified.

11. Application of Evidence Act to Income-tax Act

11.1 The general rule is that the provisions of the Evidence Act do not apply to assessment proceedings, when the authorities are called upon to consider the effect of terms of documents, then in interpreting certain terms of the document and the effect of the document, the relevant sections viz., Sections 91, 92 and 94 of the Evidence Act would be required to be considered. In other words, as laid down in A.V.N. Jagga Row v. CIT (1987) 166 ITR 862 (AP), the court came to the conclusion that with regard to the effect of the terms of the document and the validity, the provisions of the Evidence Act is required to be considered.

11.2 The A.O. is a quasi-judicial authority, but he is not fettered by technical rules of evidence and pleadings and he is entitled to act on materials which may not be accepted as evidence in a court of law. In other words, the A.O. while making an assessment is not bound by the parameters laid down in the Civil Procedure Code. This view was laid down inDhakeshwari Cotton Mills Ltd v. CIT (1954) 26 ITR 775 (SC).

11.3 Like in criminal law, the A.O. is required to take into consideration "circumstantial evidence" and he is also required to take into consideration "totality of the circumstances" before coming to a determinative question as to whether a particular item of income or expenditure is proved or not. This rule of evidence in circumstantial probability was considered in CIT v. Rameshwar Prasad Bagla (1968) 68 ITR 653 (All).

11.4 Besides that the A.O. can go beyond the parameters laid down in Civil, Criminal and Evidence Act and look into the surrounding circumstances and even issue summons and examine witnesses and other people who he suspects would have given the loans or entered into agreements in order to find out the reality of the situation as was laid down inCIT v. Durga Prasad More (1971) 82 ITR 540 (SC).

12.1 In Central Bureau of Investigation v. V.C. Shukla (1998) 3 SCC 410, the provisions of Section 34 of the Evidence Act, was considered for the purposes of the expression "entries in books of account", "books of account".

12.2 In this case, which is also known as 'Jain Hawala Diaries case", the Supreme Court came to conclusion that entries in notebooks are admissible evidence u/s. 34 of the Evidence Act but loose sheets of papers are not "books" and hence entries in loose sheets of papers are not admissible evidence at all. The Court further came to the conclusion that entries in books of accounts has "probative value" and "corroborative evidence", the court on the facts came to the conclusion that entries made in Jain Hawala Diaries though admissible u/s. 34, but truthfulness thereof was not proved by any independent evidence.

12.3 The point that I am trying to emphasise that certain papers which are maintained would have relevance at the time of assessment. However, loose papers or notings cannot be considered as independent evidence for the purposes of making additions.

12.4 It is interesting to note that sometime. "statements and admissions" are made by a person. The position regarding "statements and admissions" are governed by Sections 17 to 21 of the Evidence Act. Hence, those rules would apply to statements and admissions made by the assessee.

13. Gifts

13.1 Very often question arises when gifts are received from abroad. The Assessing Officer disbelieves the gifts and tries to add the same on the grounds that the alleged gifts are treated as unexplained cash credits u/s. 68.

13.2 In order to examine this problems from all angles concerning burden of proof, evidence, onus of proving the genuineness of the gift and penalty, the following analysis is made.

13.3 Stand of the Department: The following details/explanations are normally required:

1. Details and proof of friendship or relationship;

2. Evidence that donor had capacity to make the gift;

3. Details about status, occupation, address of donor;

4 Details of gift given by donor to assessee;

5. Cheques how delivered and details of Bank;

6. Address of donor in India and abroad.

13.4 Evidences adduced by assessee: Normally the following evidences are submitted :

1. Confirmation of the gift;

2. Explanation of the relationship;

3. Address of the donor;

4. Affidavit regarding confirmation of the gift;

5. Issue of cheques and details of NRE Account.

Problems : The A.O., in spite of all the details is not prepared to believe that the donor is a friend who is a man of success. He further contends that the assessee has not explained how the balance in NRE Account was made up at the time when gift was made. Further that the donor is only a friend and is not directly related and no evidence is filed about the proof of friendship.

The contention of A.O. is that it is against human probability that it is only a one-way traffic and the gifts are therefore not accepted as genuine.

13.5 Decisions on which Revenue may rely upon : That though the gifts amount are credited in assessee's account, the assessees is duty bound to discharge the initial burden of proof to establish the capacity of the donor to give the gift and as regards his creditworthiness and genuineness of the gift transaction. The gift is liable to be treated as unexplained cash credit u/s. 68 of the I. T. Act based onShanker Industries 114 ITR 689 (Cal.), United Commercial & Industries Co. Pvt. Ltd. 187 ITR 796 (Cal.), Xorlay Trading Co. Pvt. Ltd. 232 ITR 820 (Cal.), K.M. Sadhukhan & Sons (1999) 239 ITR 77 (Cal.).

13.6 Reference is also made to an unreported judgment of the Hon'ble Mumbai ITAT OCI Bench in LT.A. Nos. 571-574/ Bom/80 in the case of Shri Bharat Narain and Others where the gifts were liable to be assessed as unexplained cash credit even though the identity of donor was established and gifts were given by cheques, but the Tribunal came to the conclusion that the capacity of the donor and genuineness of the gift was not proved.

13.7 Burden of Proof : InPradipkumar Loyalka (1997) 63 ITD 87 (Patna) (TM) (Trib.) it was held that even though the burden of proof lies upon the assessee to prove the source of income of each of the donors, the assessee failed to furnish any evidence worth the name to establish their creditworthiness.. The evidence produced by him order to prove their creditworthiness was either scanty or negligible or did not a instill any confidence whatsoever or was against human probabilities. Therefore, the amounts were correctly disallowed by the Lower Authorities and they were correctly added in the hands of the assessee as his unexplained income.

In Sanjeev Batra (1969) 69 ITR 23 (Delhi)it was held that considering the facts and circumstances of this case and the evidence on record. we are of the view that the onus that lay on the assessee to establish the creditworthiness of the donors and genuineness of the gifts has not been discharged. The A.O. in such circumstances was justified in invoking Section 68 in deeming the receipts as income of the assessee from undisclosed sources.

13.8 Affidavits : Sometimes an Affidavit is also filed stating that the gifts have been made and indicating capacity of the party and credibility to show the genuineness of the gift having been made from the Bank Account of the donor.

13.9 Assessee's stand : That the original burden of proof which laid on the assessee has been discharged by filing necessary confirmation of the gift. Also, if relationship is mentioned, it would amount to discharging the burden of proof and if a Bank Statement coupled with Affidavit is given, then the capacity is also established. In such circumstances, the burden would then shift on the Department to prove the same. The assessee could argue the matter from the following angles:

13.9.1 That where Affidavit of donor is given the assessee has discharged his initial onus and offered satisfactory explanation with reference to NRI gifts received by him.

13.9.2 The NRI gifts have been made out of NRE Accounts.

13.9.3 That elements of close relationship and occasion relate to "realm of human probability" are in the nature of circumstantial evidence. The question of proving friendship is a matter of evidence coupled with human nature, for a person may develop fancy for a friend or a neighbour. In this connection reliance is placed on the decision ofR. K Syal v. ACIT (2000) 66 TT] 656 (Chad).

13.9.4 That gifts through cheques and confirmed by the NRI and duly supported by Affidavit is to be considered genuine :Jaikishan R. Agrawal v. ACIT (2000) 66 TT] 704 (Pune).

13.9.5 That where name and address of the donor is submitted, the identity is established, creditworthiness is evidenced and the genuineness of the transaction is proved, Where documentary evidence of gift and fact of payment by cheque and Affidavit is submitted, the gifted money cannot be treated as unexplained cash credit.

13.9.6 The onus to prove that "apparent is not real is on the revenue". Once if necessary evidence is given, the burden of proof shifts on the Department and it is for the Department thereafter to prove that the gifted money belonged to the assessees :Elite Developers v. DCIT (2000) 73 ITD 379 (Nag).

13.9.7 That where the assessee has disclosed primary facts, then the original burden of proof is discharged and it would be for the Department thereafter to prove that the gift is not genuine :Parekh Foods Ltd. v. DCIT (1998) 64 ITD 396 (Pune).

13.9.8 That where the assessee has submitted relevant evidence, documents and materials and the same are authentic. reliable and verifiable, there cannot be any ground to disbelieve the same on the basis of surmise, conjecture or probability. InJaya S. Shetty v. ACIT (1999) 69 ITD 336 (Mum.)the Tribunal made it clear that additions based on conjecture, surmise. estimates and presumptions which are not supported by any document or evidence cannot be treated as undisclosed income.

13.10 Controversy : Where gift is received from NRI and the Assessing Officer is doubting since the quantum of the gift is huge amount. say₹ 50 lakhs, he has questioned the genuineness of the gift. At the same time, the assessee has furnished various evidences and proofs including Affidavit Thus the assessee has discharged the initial burden of proof, the onus is now shifted on the Department to prove that the evidence which is furnished is false. This must be substantiated by some cogent evidence and cannot be on the basis of mere preponderance of probability or on human nature. It is very difficult for the Department to establish what is friendship?"

13.11 The case of the Department could be that the gift is colourable devise and is a mode to transfer funds out of India and to channelise them back to India. Participants are requested to analyse such situations in the light of (a) the requirement of proof which the Department would require; (b) the evidences furnished by the assessee and (c) on the basis of the caselaws which have been cited, the validity of the gift will have to be examined since this is very often a burning problem when gift are received of large amounts from foreign countries.

14. Statement of assessee as part of evidence and law of retraction

14.1 Statements are made by the assessee at the time of search and these statements become part of the record. Once a statement is made in the presence of witnesses and signature is taken, it becomes "piece of evidence". However, it is quite likely that thereafter, the assessee files an affidavit retracting his statement.

14.2 The general rule is that admissions give rise to "rebuttable presumption". Admissions are not conclusive proof and they may operate as estoppel in further proceedings as laid down in Section 31 of the Evidence Act. However, there is a right of rebuttal on the ground that the confession or admission was induced by threat, promise and hence, it is irrelevant – Section 24 of the Evidence Acc.

14.3 It can also be argued that the statement made was for a limited purpose of seeking explanation in respect of documents, articles or things found during the search :R.C. Gavit v. Smt. Sherbano Hassan Daya – (1986) 161 ITR 793 (Bom.).

14.4 A confession even if inculpatory should be corroborated by independence evidence. It is quite likely that statements recorded during search continue for an unduly long period and therefore, cannot be considered to be free, fearless and voluntary. Hence, such statements can be retracted on the ground that the same were recorded under pressure and force :Deepchand and Co. v. ACIT (1995) 51 TT] 421 (Bom.).

15. Analysis of Section 293 of the Income-tax Act

15.1 Section 293 of the Income-tax Act, 1961, bars any civil suit "to set aside or modify any proceedings or order made under the Act". It is true that bar against civil actions within the jurisdiction of a civil court under Section 9 of the Civil Procedure Code, 1908, will not be lightly or readily inferred.

15.2 The philosophy of Section 293 is that the section bars suit to section aside or modify an assessment, even where an assessment is erroneous or wrong. Thus, no suit can be brought in any civil court to set aside or modify an assessment.

15.3 Issue is whether a tax proceedings can await till the outcome of a pending civil dispute. InU.S. Nayak v. CWT (1968) 68 ITR 171 (Mysore), a suit was pending in the civil court concerning transfer of the property. In the meantime, the value of the property had appreciated and the assessee was called upon to pay tax on rhe enhanced value which is the fair market value ignoring the amount invested. The argument of the assessee was that the title in the suit is being disputed. The High Court in this case came to the conclusion that a dispute pending would not affect the valuation of the property which according to the Wealth Tax Act is required to be made at a fair marker value.

15.4 ln CWT v. H.H. Smt. Rajkuverva (1972) 86 ITR 783 (Mysore), here the dispute was regarding ownership of certain shares and debentures and for which the matter was pending final adjudication in the Court. In this case, the Court made a distinction between "classes of assets" and came to rhe conclusion that in respect of chose cases which are subject matter of dispute, valuation could be made at a much lower rate.

15.5 In Durga Prasad Ramniwas Podar v. WTO (1985) 153 ITR 76 (Bom.), there was dispute regarding property and the final outcome of the civil dispute was that the assessee lost title to the property. In this case, che court came to the conclusion that since ultimately the assessee was not the owner of the property, therefore, wealth tax on the same cannot be paid and the notice for reassessment was quashed. In this case, the court recognised subsequent events after the date of filing of the Return as well as the impact of civil disputes on a particular assessment.

15.6 InMrs. Korshedshapoor Chenai v. Asst. CED (1980) 122 ITR 21 (SC), a right even though in dispute was regarded as a valuable right for the purposes of estate duty. The Supreme Court held that a right to enhanced compensation was property and hence, liable for inclusion on the death of the person for the purposes of estate duty.

15.7 In CIT v. Hindustan Housing and Land Development Trust Ltd. (1986) 161 ITR 524 (SC), there was a dispute regarding additional compensation awarded by the lower court. The matter of compensation was in dispute and the court came to the conclusion that the same is not assessable since the decree on the same is yet to be delivered by the court.

16. Evidence collected from illegal search

16.1 It may be noted "that right of privacy" has been accepted implicitly with right to life and liberty guaranteed by Article 21 of the Constitution. It is in this connection that reference is made to the law on admissibility of evidence obtained in an illegal search u/s. 132 of the LT. Act and the decision inPooran Mall v. Director of Inspection (Investigation) (1974) 93 ITR 505 (SC).

16.2 The English Rule of evidence is that the test to be applied, both in civil and criminal cases, in considering whether evidence is admissible is whether it is relevant to the matter in issue or not.

If it is, admissible the court is not concerned how the same is obtained. This proposition was laid down inEngland in Kuruma v. Queen (1955) AC 197 (PC) as well as in the United States in Olmstead v. United States (1928) 277 US 438.

16.3 Thus, taking the law from England and America, the real test of admissibility of evidence lies in its relevancy. Thus, the use of material obtained in an illegal search can also be used against the assessee. It would not be opened to contend that the information obtained as a result of illegal search is violative of right to privacy. The result is that evidence obtained as a result of illegal search or seizure can be used against the assessee.

17. Attachment – Schedule ii of the i.t. act and application of various provisions of civil procedure code

17.1 So far as the provisions contained for attachment and sale of property, there are various provisions of the Civil Procedure Code which are imported in the Income-tax Act. They are summarised and listed as follows :

(a) Notice to defaulter requiring payment – Rule 2 of Schedule II;

(b) Execution of money decree – Rule 16 of Schedule II;

(c) Attachment of immovable property of defaulter after notice is served – Rule 51 of Schedule II;

(d) Proclamation of sale – Rules 52, 53 and 55 of Schedule II;

(e) Rules to set aside sale on grounds of irregularity – Rule 61 of Schedule II;

(g) Right of arrest and detention of defaulting assessee – Rules 73 to 81 of Schedule II;

(h) If the claim of the party is one where a dispute arises as to ownership of the property which is attached then the matter could be referred to a civil court by virtue of Rule 16 of Schedule II.

17.2 The rules contained in Civil Procedure Code apply to Part II of Second Schedule concerning attachment of sale of movable property. Rule 23 deals with attachment of movable property and Rule 26 prescribes the procedure for attachment of debt not secured by a negotiable instrument and shares of a company. As per Rule 32, if the property to be attached consists of interest of defaulter in partnership property, the same shall also be attached by the IT. Department.

17.3 One important point which needs to be highlighted is that as per Rule 35 of the Second Schedule, attachment of assets by seizure shall be made only after sunrise and before sunset and not otherwise. References is also invited to Rule 36, however, it may be pointed out that these Rules are being flouted.

17.4 Part III of Second Schedule contains Rules governing attachment and sale of immovable property. These Rules are all encompassed and embodied in the provisions of Sections 222, 276 and 281B of the I.T. Act. All these sections are in tune with the provisions of various orders of Civil Procedure Code which would apply to the present case.

18.1 Section 253 of the Income-tax Act gives power to Tribunal to condone delay. Judicial bodies are empowered to condone delay if a litigant satisfies the court that there were sufficient reasons for availing remedy after expiry of limitation. The words occurring in the section are "sufficient cause" – Section 253(5). They should be liberally construed so as to advance substantial justice. Like in Civil Procedure Code, the length of delay is immaterial and acceptability of explanation is the main criteria for condonation of delay.

18.2 Recently, inSterlite Industries v. ACIT (2006) 6 SOT 497 (Mum.), it was held that the expression "sufficient cause or reason" used in Section 253(5) is in identical position with the Limitation Act, 1963 and CPC and therefore the various circumstances for sufficient cause should receive a liberal construction provided the explanation given by the assessee does not smack of mala fide or dilatory strategy.

18.3 Similarly, in Earthmetal Electricals (P) Ltd. v. ITO (2005) 4 SOT 484 (Mum), the Tribunal held that courts and quasi-judicial bodies are empowered to condone delay if a litigant satisfies the court that there were sufficient reasons for availing remedy after the expiry of the period of limitation. Here also, the rules of Evidence Act and Civil Procedure Code were considered by the Tribunal.

19. Doctrine of Res Judicata

19.1 The doctrine of res judicata is pronounced in Section 9 of the CPC The same has limited application in the Income-tax Act. This is- qualified by the proposition that the A.O. is not bound by the rule of res judicata or estoppel, since he can reopen or agitate on a question previously decided in a particular way but can deviate from the same since fresh facts have come to light.

19.2 The principle of res judicata does not apply in Income-tax Act since the earlier decision if it had a mistake deserves to be rectified or from the assessee's point of view, the Department cannot depart from an earlier decision since such departure would result in injustice to the assessee. On same facts, the same position should continue by virtue of "doctrine of precedence".

19.3 Issue for consideration is whether an admission made by the assessee in an assessment proceeding can be used as an evidence against him in a subsequent year? Similarly, a decision of civil court whether it could operate as a res judicata or an estoppel to bind the department? If the High Court grants probate or letters of administration in respect of the Will, can the department still say that the Will is sham and not binding on the Department?

19.4 The Government is bound by its promise based on "doctrine of promissory estoppel". Issue-for examination and consideration is can an undertaking given on the floor of the Parliament or a speech made by the Finance Minister or an circular issued by CBDT bind the Government?

20. Conclusion

InA. K. Gopalan v. State of Madras, AIR 1950 SC 27, the Supreme Court held that "the courts are not at liberty to declare an Act void because in their opinion it is opposed to a spirit supposed to pervade the Constitution but not expressed in words … It is difficult upon any general principles to limit the omnipotence of the sovereign legislative power by judicial interposition, except so far as the express words of a written constitution give that authority".

21. Table of cases

1.

Amar Natvarlal Shah

68 TTJ 51G (All)

Additions on the basis of loose papers not sustainable.

2.

V. V. S. Alloys Ltd.

68 TTJ 51G (All)

Additions on the basis of diary not sustainable.

3.

Jaya Sherry

69 ITD 336 (Mum)

Addition on the basis of dumb diary not sustainable.

4.

Pooja Bhatt

73 ITD 205 (Mum)

Addition based on rough notes not sustainable.

5.

T. S. Venkateshan

74 ITD 298 (Cal)

Writings on loose papers found with the third party cannot be added as income of the assessee.

6.

Monga Metals Pvt. Ltd.

67 TT] 247 (All)

Burden of proof and onus on the revenue to prove that figures on the loose papers are assessee's undisclosed income.

7.

Satinder Kumar

(2001) 250 ITR 484 (P&H)

Revenue relied upon impounded diary of property dealer recording transactions, but information did not relate to the very property under consideration and there was wide discrepancy in value. Court did not rely upon noting in diary.

8.

Arul Kumar Jain

(1999) 64 TTJ 786 (Del)

Additions on the basis of loose papers cannot be sustained, unless there is corroborative material evidence.

9.

Urmila Chandak v. ACIT

60 TTJ 758 (Mad)

Review / re-examination not possible.

10.

Harak Chand N. Jain v. ACIT

(1998) 61 TTJ 223 (Mum)

AO cannot make roving enquiries without fresh evidence. He has no powers to override the rules of evidence.

11.

Alok Agarwal v. DCIT

(2000) 67 TTJ 109 (Del)

AO not permitted to go beyond materials discovered and has to restrict to what is found at the time of search and cannot make roving enquiries on unconnected matters.

12.

Rameshwar Lal Ahuja v. ACIT

(2000) 67 TTJ 441 (Chad)

Re-appreciation of evidence can be done only where fresh material is discovered.

13.

Sunder Agencies v. DCIT

(1997) 63 ITD 245 (Mum)

Sec. l58BA does not provide a licence to the revenue for making roving enquiry.

14.

Indore Constructions Pvt. Ltd. v. ACIT

(1999) 71 ITD 128 (Ind)

Re-examination of original assessment not possible in Block Assessment.

According to Section 34 of the Indian Evidence Act, 1872, entries in books of account regularly kept in the course of business, are relevant whenever they refer to a matter into which the court has to enquire but such statements shall not alone be sufficient evidence to charge any person with liability. From a plain reading of Section 34 it is manifest that to make an enquiry relevant thereunder it must be shown that it has been made in a book, that book is a book of account, and that book of account has been regularly kept in the course of business. From this it is also understood that even if the requirements are fulfilled and the entry becomes admissible as a relevant evidence still the statement made therein alone shall not be sufficient evidence to charge any person with liability. From the above it is seen that the first part of the Section speaks of relevancy of evidence and the second part speaks in a negative way of its evidentiary value for charging a person with liability.(C.B.I. v. V.C. Shukla (1998) 3 sec 410 at 425).

It cannot be gainsaid that words "account", "books of account", "business", "regularly kept" appearing in Section 34 are of general import. Necessarily, therefore, such words must receive a general construction unless there is something in the Act itself such as the subject matter with which the Act is dealing or the context in which the words are used and to show the intention of the legislature that they must be given a restrictive meaning.(C.B.I. v. V.C. Shukla (1998) 3 SCC 410 at 425).

"Book" ordinarily means a collection of sheets of paper or other material, blank, written, or printed, fastened or bound together so as to form a material whole. Loose sheets or scraps of paper cannot be termed as book for they can be easily detached and replaced. Thus, spiral notebooks and spiral pads can be regarded as "books" within the meaning of Section 34 of the Indian Evidence Act, but not the loose sheets of paper contained in the files. Further to ascertain that the books of account has been regularly kept, the nature of occupation is an eminent factor to be considered. In order to charge any person with liability it is not enough merely to prove that the books have been regularly kept in the course of business and the entries therein are correct. It is also necessary for the person relying upon those entries to prove that they were in accordance with facts. In other words even correct and authentic entries in books of account cannot without independent evidence of their trustworthiness fix a liability upon a person.(C.B.I. v. V.C. Shukla 1998 3 Sec 410 at 425).

As per the decision of the Bombay High Court inCIT v. Bhaichand H. Gandhi (1983) 141
· ITR 67, 69 (Bom)a passbook supplied by the bank to the assessee cannot be regarded as the "book' of the assessee, that is a book maintained by the assessee, or under his instructions.

c) AFFIDAVIT

As per the Blacks Law Dictionary 6th Edition, the term "affidavit" means – "a voluntary declaration of facts written down and sworn to by the declarant before an officer authorised to administer oaths, such as a notary public". As per Section 3(3) of the General Clauses Act affidavit is defined as:

"Affidavit" shall include affirmation and declaration in the case of person by law allowed to affirm or declare instead of swearing.

If an affidavit is filed by an assessee and he is neither cross-examined on that point nor is he called upon by the department to produce any ' t documentary evidence, the assessee may assume that the Income tax authorities are satisfied with the affidavit as sufficient proof on that point in question.(L. Sohan Lal Gupta v. CIT (1958) 33 lTR 786 at I 791(All)). This is so because the rejection of an affidavit filed by an assessee is not justified unless the deponent has either been discredited in cross-examination or has failed to produce other supporting evidence when called upon to do so. [Mehta Parikh & Co. v. CIT (1956) 30 ITR 181 at 187 (SC), Sri Krishna v. CIT (1983) 142 ITR 618 (All), Dilip Kumar Roy v. CIT (1974) 94 ITR 1 {Bom.)}.

For instance where a clear intention to waive the separate rights of the assessee to the properties standing in his name is established by an affidavit, the Income-tax authorities should come to the conclusion that the properties in question belong to the family and not to the assessee(Laxmi Narayan Gadodia & Co. (1943) 11 ITR 491 (Lah.)

The Mehta Parikh and Co. Case 30 ITR 181 cannot be construed to lay down the proposition that unless the deponent is cross-examined, the affidavit cannot be rejected. That decision lays down that if there is no material whatsoever on record for doubting the veracity of the statements made in the affidavit and if the deponent has also not been cross-examined for bringing out the falsity of his statements, then the tribunal will not be justified in doubting the correctness of the statements made by the deponent in the affidavit.

A finding given by the appellate Tribunal without considering the affidavit concerning a material evidence may not be sustainable at law even though the Tribunal had considered other material on record. This is so because an affidavit is a valid piece of evidence (Hanutram Ram Prasad v. CIT (1978) 114 ITR 19,26 (Gauh).

Affidavits are either affirmed as true to knowledge, or from information received provided the source of information is disclosed or as to what the deponent belief to be true provided the grounds for such believe are stated. If an affidavit lacks verification, it is of no use(Sundar Industries v. General Engineering Works, AIR 1982 Del. 220, 223). In other words, if an affidavit not properly verified it cannot be admitted in evidence (A. K. K. Nambiar v. Union of India, ITR 1970 SC 652, 654) as it is no affidavit in the eyes of Law(State of Rajasthan v. Sindhi Film Exchange AIR 1974 Raj 31, 33). The importance of verification is to test the genuineness and authenticity of statements and also to make the deponent responsible for such statements (Narendra Kumar Saklecha v. Jagjivan Ram AlR 174 SC 1957).

In Smt. Sudha Devi v. MP. Narayanan AIR 1988 SC 1381, 1383 the plaintiff was not allowed to fill up the lacuna in the evidence by filing an affidavit belatedly at the Supreme Court stage.

In the above case it was also said that affidavits are not included in the definition of evidence in Section 3 of the Indian Evidence Act, 1872 and can be used in evidence only if the court permits it to be used for sufficient reasons.

d) Noting in diary, loose paper, dumb paper

In the case ofCentral Bureau of Investigation v. V. C. Shukla & Ors. 1998 3 SCC 410 popularly known as Jain Hawala Case where Section 34 of the Evidence Act, 1872 has been explained. In this case it is held that entries in Jain Notebooks held on facts admissible under Section 34, but file containing loose sheets of papers are not ''book" and hence entries therein not admissible under Section 34. Further it was also held in this case that entries in books of account shall not alone be sufficient evidence to charge any person with liability. Entries even if relevant are only corroborative evidence. Independent evidence as to trustworthiness of those entries is necessary to fasten the liability. In view of these facts it was held by the Honourable Supreme Court, that entries made in the Jain Hawala diaries are under Section 34, but truthfulness thereof not proved by any independent evidence. It was also held in this case that "books" ordinarily mean a collection of sheets of paper or other material, blank, written, printed, fastened or bound together so as to form a material whole. Loose sheets or scraps of paper cannot be termed as "book" for they can be easily detached and replaced. The Supreme Court further went on to state that even correct and authentic entries in books of account cannot without independent evidence of their trustworthiness fix a liability upon a person.

The Hon'ble Tribunal in the case of S. P. Goyal v. Dy. CIT (2002) 82 ITD 85 (TM)has held that mere entry on loose sheet of paper not supported by actual cash cannot be considered to be sufficient evidence to treat the same as Cash credits under Sec. 68. This decision has been arrived at by considering the Supreme Court decision in the case of CBI v. V.C. Shukla, popularly known as the Jain Hawala Case.

In the case of Satnam Singh Chhabra v. Deputy CIT (2002) 74 TTJ (Luc) 976 held that loose paper cannot be construed as books and therefore Section 34 of the Evidence Act would not apply and therefore it cannot be a basis for addition. It was also held in this case that the loose paper found in the premises of the assessee during search of which, the asseessee categorically denied the authorship and the transaction noted therein, cannot be considered as sufficient evidence. In the case ofS. K. Gupta v. DCIT (1999) 63 TTJ (Del.) 532 also held that addition made on the basis of loose sheet and torn papers found during the search were unwarranted. The case ofPrarthana Construction (P) Ltd. v. DCIT (2001) 70 ITJ (Ahd.) 122also states that addition on the basis of loose papers without any corroborating evidence cannot be the basis for addition.

In the case of Ashwani Kumar v. ITO (1991) 39 ITD 183 held that "document" which was found at the time of search and which did not indicate whether the figures referred to quantities of money or to quantities of goods, was a "dumb" document and no addition could be made on the basis of such document. In this decision it was also held no addition could be made on the basis of sample analysis report which showed that assessee sold adulterated cement.

e) Written and oral statements

Written and Oral Statements are normally termed as admissions and these provisions are found in Sections 17 to 31 of the Indian Evidence Act, 1872. However as far as Income Tax Provisions are concerned, admissions are normally in terms of written statements and the evidentiary value of the same could best be explained by the following case laws:

An admission or acquiescence cannot be the foundation for an assessment, were the income is returned under an erroneous impression or misconception of law (Abdul Qayume v. CIT (1990) 184 ITR 404 (All.) & Absalom v. Talbot (1944) 26 Tax cases 166 at 192. What is admitted by a party to be true must be presumed to be true unless the contrary is shown(Nathoo Lal v. Durga Prasad AIR 1954 SC 355, 358). Thus an admission is not conclusive proof of the matter admitted, though it may, in certain circumstances, operate as estoppel(K. S. Srinivasan v. Union of India, AIR 1958 SC 419, 427).

In the case of ACIT v. Anoop Kumar (2005) 94 TTJ (Asr) 288, it is held that addition could not be made merely by relying on the statement recorded under section 132(4) as there was no supportive material to justify such addition.

In the case of DCIT v. M.L. Jain (2005) 96 TTJ (Jd) 362it is held that no addition can be merely based on the statement recorded during search under Section 132(4) of the assessee, for such a statement recorded does not tantamount to any, money, bullion and jewellery or other valuable articles found during the course of search.

From the above case laws the principle that emerges is that mere statement/ admission has no evidentiary value unless supported by corroborative evidence leading to tangible assets.

f) Statement u/s. 133A r.w.s. 131:

The statement elicited during the survey operation had no evidentiary value as held by the Kerala High Court in Paul Matthews andSons v. CIT 263 ITR 101 (Ker). It is because Section 133A does not empower the AO to examine any person on oath. Thus in contradistinction to the power u/s. 133A, Section 132(4) of the IT Act enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Income-tax Act. On the other hand whatever statement recorded u/s. 133A of the Income-tax Act is not given an evidentiary value (263 ITR 101). Therefore a mere admission or an aquiescence cannot be a foundation for an assessment and that any statement given during survey has no effect as an "admission" nor can it be a statement on oath. U/s. 131 there must be pendency of proceedings before the concerned authority for invoking the provisions of Section 131 as held by the Bombay High Court in the case of G. M. Breweries Ltd. v. Union of India (2000) 108 Taxman 547 (Bom). It was held by the Supreme Court in the case ofShrimati Amiya Bala Paul v. CIT (2003) 262 ITR 407 (SC) that assessing officer cannot refer to valuation officer in exercise of powers u/s. 55A by using Sections 131 or 133.

The Bombay High Court in the case ofR. R. Gavit v. Sherbanoo Hasan Daya (1986) 161 ITR 793 (Bom) held that the purpose of examination on oath u/s. 132(4) is limited to seeking explanation or information in connection with search and is not authorised to put questions in general.

g) Electronic Records

As per Section 2(1)(t) "electronic record" means data, record or data generated, image or sound stored, received or sent in an electronic form or microfilm or computer generated microfiche.

Evidence in this form can be both oral and documentary and electronic records can be produced as evidence. The provisions relating to admissibility of such evidence can be found in Section 65B of the Indian Evidence Act. As per this provision any information contained in an electronic record which is printed in a paper, stored, recorded, or copied in optical or magnetic media produced by a computer (computer output put) shall be deemed to be also any document and shall be admissible in any proceedings without further proof or production of the original, as evidence of title of the contents of the original or any facts stated therein of which direct evidence would be admissible. This is subject to satisfaction of certain conditions stipulated in sub-section 2 of Section 65B. Further that evidence, even in criminal matters, can also be by way of electronic records. This would include video conferencing(State of Maharashtra v. Praful B. Desai 2003 Cri. J 2033 (SC)).

v) Presumption and Presume

A presumption is an inference of fact drawn from other known or proved facts. It is a rule of law under which courts are authorised to draw a particular inference from a particular fact.

Section 4 of the Evidence Act defines the terms "May presume", "Shall presume", "Conclusive proof". The definitions are as under:

"May presume"- Whenever it is provided by this act that the Court may presume a fact, it may either regard such fact as proved, unless and until it is disproved, or may call for proof of it.

"Shall presume"- Whenever it is directed by this Act that the Court shall presume a fact, it shall regard such fact as proved, unless and until it is disproved.

"Conclusive proof"- When one fact is declared by this act to be conclusive proof of another, the Court shall, on proof of the one fact, regard the other as proved, and shall not allow evidence to be given for the purpose of disproving it.

In this regard it must be clearly noted that a presumption is not in itself evidence but only makes a prima facie case for a party in whose favour it exists. It indicates the person on whom the burden of proof lies. When the presumption is conclusive it obviates the production of any other evidence to dislodge the conclusion to be drawn on proof of certain facts. Here it must also be noted that all presumptions can be rebutted by evidence.

The above three expressions have been considered and analysed by the Supreme Court in a very recent case ofP.R. Metrani v. CIT (2006) 287 ITR 209 (SC)wherein it has been held in the following terms: Section 132(4A) of the Income-tax Act, 1961, enables an assessing authority to raise a rebuttable presumption that books of account, money, bullion, etc. found in the possession of any person during a search, belong to such person and that the contents of such books of account and other documents are true, and that the signatures and every part of such books of account and other documents are signed by such person or are in the handwriting of that particular person. Further in this case it has also been held that the presumption under Section 132(4A) would not be available for the purposes of framing a regular assessment.

Evidence of some collateral fact from which the existence or non-existence of some fact in question maybe inferred as a probable consequence is termed circumstantial evidence.

For conviction on circumstantial evidence, the following conditions must be fulfilled:

1) The circumstances from which the conclusion of the guilt is to be drawn should be fully established.

2) The facts so established should be considered not only with the hypothesis of the guilt of the accused, that is to say, they should not be explainable on any other hypothesis except that the accused is guilty.

3) The circumstances should be of conclusive nature and tendency.

4) They should exclude every possible hypothesis except the one to be proved.

5) There must be chain of evidence so complete as not to leave any reasonable ground for the conclusion consistent with the innocence of the accused and must show that in all human probability the act must have been done by the accused.

(Sharad Birdhichand Sharda v. State; AIR 1984 SC 1622)

(Sudama Pandey v. State; AIR 2002 SC 293)

Corroborative Evidence

Black's Law Dictionary, 8th Edition defines corroborative evidence as evidence that differs from but strengthens or confirms what other evidence shows (esp. that which needs support). Circumstantial evidence is defined as evidence based on inference and not on personal knowledge or observation (also termed indirect evidence; oblique evidence). "Some circumstantial evidence is very strong as when you find a trout in the milk". (Henry David Thoreau-Journal, 11th November 1850). "Evidence of some Collateral fact, from which the existence or non-existence of some fact in question maybe inferred as a probable consequence, is termed Circumstantial evidence" William P. Richardson. The Law of Evidence, 3rd edition at page 68.

Corroboration need not be direct evidence of commission of crime, it may be circumstantial(Hussain v. Dalip Singhji AIR 1970 SC 45).

It has been held in England that the Jury is entitled to consider whether silence of accused when charged with the offence is or is not some corroboration(R v. Felghenbaum, 1919, 1KB 431).

Substantial Evidence

"Substantial Evidence" means evidence that a reasonable mind could accept as adequate to support a conclusion. Evidence offered to help establish a fact in issue, as opposed to evidence directed to impeach or to support a witness's credibility is also called as Substantial Evidence.

From the above it can be seen that substantial evidence has more persuasive value than the other two. However, all the three, corroborative, circumstantial and substantial evidence have its own value based on the particular situation in which that evidence is used and also based on the law in which the Court is deciding. There is no any hard and fast rule that the particular evidence is more valuable in the matters of Taxation Laws. All these evidences have its own persuasive value in the proceedings, which is before an assessing authority.

The word "evidence" as used in Section 143(3) of the Income-tax Act, 1961 and obviously cannot be confined to direct evidence. The word comprehensive enough to cover circumstantial evidence (Paras Dass Munna Lal v. CIT (1937) 5 ITR 523 at 526 (Lahore). The word evidence has been used in that section in a wider sense (CIT v. Khemchand Ramdas (1940) 8 TIR 159, 176 (Sind) or the generic sense, and not in the arrested sense as to be either oral or documentary or both (CIT v. Metal Products of India (1984) 150 ITR 714, 717 (Punj). The use of the word "material" or "material gathered" in section 143(3) shows that the Assessing Officer not being a Court can rely upon material, which may not strictly be evidence admissible under the Indian Evidence Act for the purpose of making an assessment order. Thus not only in respect of the relevancy but also in respect of proof the material, which can be taken into consideration by the assessing officer and other authorities under the IT Act is far wider than the evidence which is strictly relevant under the Evidence Act(Addl. CIT v. Jay Engineering Works Ltd. (1978) 113 ITR 389, 391 (Del. HC).

Material or evidence on which taxing authorities may rely under the IT Act is not confined to direct testimony in the shape of statements made by witnesses. All relevant circumstances which have a bearing in this issue which are revealed in the course of assessment would be covered by the expression material or evidence on which the Income Tax officer could rely(Mangalchand Gobardhan Das v. CIT (1954) 26 ITR 706, 710, 711 (Assam). The material on which reliance may be placed by the assessing officer may be within his own knowledge and might have been derived by him from hearsay or from information of a most authentic character. However the assessing officer should bring this evidences to the attention of the assessee and the Rules of Natural Justice are not to be violated. (Seth Gurmukh Singh v. CIT (1944) 12 ITR 393, 425 (Lah).At the same time material gathered in the assessment proceedings of one person is not legal evidence in the assessment of another person (N. S. Choodamani v. CIT (1959) 35 ITR 676 (Ker)). Similarly evidence brought on record without the knowledge of the assessee and used against him without giving him an opportunity to rebut it offends the principle of natural justice(MO Thomakutty v. CIT (1958) 34 ITR 50l (Ker)).

vii) Proved, Disproved, Not Proved

Section 3 of the Indian Evidence Act defines the terms 'Proved', 'Disproved' and 'Not Proved' as follows:

'Proved' – A fact is said to be proved when, after considering the matter before it, the Court either believes it to exist, or considers its existence so probable that a prudent man ought, under the circumstances of the particular case, to act upon the supposition that it exists.

'Disproved' – A fact is said to be disproved when, after considering the matters before it, the Court either believes that it does not exist, or considers its non-existence so probable that a prudent man ought, under the circumstances of the particular case, to act upon the supposition that it does not exist.

'Not Proved' – A fact is said to be Not Proved when it is neither proved nor disproved.

viii) Burden of Proof and Onus of Proof

"Burden of proof" really means two different things. It means sometimes that a party is required to prove an allegation before judgement can be given in its favour; it also means that on a contested issue, one of the two contending parties has to introduce evidence. The burden of proof is of importance only where by reason of not discharging the burden, which was put upon it, a party must eventually fail. Where, however parties have joined issue and have led evidence and the conflicting evidence can be weighed to determine which way the issue can be decided, the abstract question of burden of proof becomes academic (Narayan Bhagwantrao Gosavi Balajiwale v. Gopal Vinayak Gosavi AIR 1960 SC 100, 105).

The question of onusprobandi is certainly important in the early stages of a case. It may also assume importance where no evidence at all is led on the question in dispute by either side; in such a contingency the party on whom the onus lies to prove a certain fact must fail. Where, however, evidence has been led by the contesting parties on the question in issue, abstract considerations of onus are out of place; the truth or otherwise of the case must always be adjudged on the evidence led by the parties (Kalwa Devadattam v. UOI (1963) 49 ITR 165, 175 (SC)). In other words onus as a determining factor comes into play when there is either no evidence on either side or where it is actually worthless or equally balanced.

Initial onus is on the Department to prove each item, which is liable to be taxed as revenue receipt, but the extent of the burden always depends upon the nature of the income and the circumstances in which it was made. Once the assessee gives an explanation which in the opinion of the Income Tax Department is not true and which could not reasonably be true, the burden is on him to prove that what he has stated is true and whatever burden is on the department stands shifted thereafterJuggilal Kamlapat v. CIT (1964) 52 I1R 811, 822(All)). In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision. Where, however, a receipt is of the nature of income, the burden of proving that it is not taxable because it falls within an exemption provided by the Act lies upon the assessee. (Parimisetti Seetharamamma v. CIT (1965) 57 ITR 532, 536 (SC)).

There is an essential distinction between ''burden of proof" and "onus of proof". Burden of proof lies on the person who has to prove a fact and it never shifts, but the onus of proof shifts. Such a shifting of onus is a continuous process in the evaluation of evidence. (A. Raghavamma v. A. Chenchamma AIR 1964 SC 136, 143).

Onus of proof in the case of an assessment is the same as what is stated herein above. However in the case of Cash Credits, unexplained investments etc. which is deeming provision and here it is the assessee who has to explain the credit or investments and hence the onus lies on the (assessee not only to say that it is correct but also to prove that it is correct. When a cash credit entry appears in the assesseee's books of account, the assessee has a legal obligation to explain the nature and source of such credit (Sreelekha Banerjee v. CIT (1963) 49 ITR 112, 117 (SC). If the assessee offers an explanation about the cash credit, the Income Tax department can put the assessee to proof of his explanation and if the assessee fails to tender evidence or avoid an enquiry, then the assessing officer is justified in rejecting the explanation and holding that the income is from an undisclosed source. The assessing officer is not required to specify or prove what that source is, which from the nature of the case must be known only to the assessee. (Seth Kalekhan Md. Hanif v. CIT (1958) 34 ITR 669 at 674 affirmed in (1963) 50 ITR 1 (SC). The Supreme Court modified the Ir above decision later in the case ofParimisetti Seetharamamma v. CIT (1965) 57 ITR 532, 537 (SC). In this case it was laid down that the burden of proof held in the earlier two cases to be upon the assessee to prove the source, nature and character of the credit would not apply to a case, where the source of the receipt is disclosed by the assessee and there is no dispute about the truth of that disclosure and in such event, the income tax authorities would not be entitled to raise an inference that the receipt is assessable to Income- tax on the ground that the assessee had failed to lead all the evidence in support of his contention that it is not within taxing provision. (Ganesh Prasad v. CIT (1968) 67 ITR 344, 348 (All)).

Onus when discharged or shifted

It has consistently been laid down that when assessee claims that he had borrowed money from a third party, the initial onus lies on the assessee to establish – a) the identity of the third party, b) the ability of the third party to advance money; and prima facie that the loan is a genuine one. The mere production of a confirmation letter is not sufficient to prove that the alleged loan is genuine (Bharati (P) Ltd. v. CIT (1978) 111 ITR 951 (Cal). If the assessee establishes the aforesaid three pre-conditions, it would be for the department to disprove the same (CIT v. Baishnab Charan Mohanty (1995) 212 ITR 199 (Orissa).

Burden of proof in the case of Search and Seizure

In Search and Seizure cases the burden of proof is on the assessee in view of the presumptions provided under section 132 (4A) of the IT Act. However it should be noted that such e presumption is rebuttable. Moreover the presumption envisaged is only a factual presumption. The burden of proof to explain the ownership of assets is on the assessee in respect of assets found in assessee's possession. But where the property is in joint possession with wife, who also doing business and has disclosed the assets found during search in assessees premises and such income has also been taxed in wife's hands, the burden of proof on the accused stand discharged (District Superintendent of Police, Chennai v. Inbasagaran K (2006) 282 ITR 435 (SC). While there is a presumption that the documents found belongs to assessee, there is no further resumption that such document is also in the handwriting of the assessee. The burden of proof that the investment in the asset not recorded in the books of account is on the revenue. (Ushakant Patel v. CIT (2006) 282 ITR 553 (Guj)).

In respect of cash found, the burden to explain the source is on the assessee. Where the explanation is not supported, the inference that this undisclosed income follows. In the case ofVikhram v. ACIT (2006) 285 ITR 256 (Del.), the assessee found in possession of large amount of cash explained the amount as belonging to Congress I Party, of which he was a member but both President and Secretary of the party denied any concern with the cash found in the possession of the assessee. The High Court confirmed the addition on the basis of the Law on Burden of Proof under Section 110 of the Indian Evidence Act and the requirement of Section 69A of the Income-tax Act, besides the law laid down by the Supreme Court inChuharmal v. CIT [1988] 172 ITR 250 (SC) as regards burden of proof in respect of assets found in assessee's possession.

ix) Examination-in-Chief

U/s. 137 of the Evidence Act Examinations are as under:

Examination-in-Chief – The examination of a witness by a party who calls him shall be called his Examination-in-Chief.

Cross-Examination – The examination of a witness by the adverse party shall be called his cross examination.

Re-Examination – The examination of a witness, subsequent to the cross-examination, by the party who called him, shall be called his re-examination.

Section 138 says the order of examinations and it also directs that the examination and cross-­ Examination must relate to relevant facts, but the cross-examination need not be confined to the facts to which the witness testified on his Examination-in-Chief.

David Paul Brown of the Philadelphia Bar has laid down certain rules for Examination-in­ chief and cross-examination and they are acknowledged by competent authorities to be safe guides. They are reproduced below:

Paul Brown's "Golden Rules" for Examination-in-Chief

1) If they are bold, and may injure your cause by pertness or forwardness, observe a gravity and ceremony of manner towards them which may be calculated to repress their assurance.

2) If they are alarmed or diffident, and their thoughts are evidently scattered, commence your examination with matters of a familiar character, remotely connected with the subject of their alarm, or the matter in issue as, for assistance – Where do you live? Do you know the parties? How long have you known them? and the like. And when you have restored them to their composure, and the mind has regained its equilibrium, proceed to the more essential feature of the case, being careful to be mild and distinct in your approaches, lest you again trouble the fountain from which you are to drink.

3) If the evidence of your witnesses be unfavourable to you (which should always be careful guarded against), exhibit no want of composure; for there are many minds that form opinions of the nature or character of testimony chiefly from the effect which it may produce upon the counsel.

4) If you perceive that the mind of the witness is imbued with prejudices against your client, hope but little from such quarter – unless there be some facts which are essential to your client's protection, and which that witness alone can prove; either do not call him, or get rid of him as soon as possible. If the opposite counsel perceive the bias to which I have referred, he may employ it to your own ruin. In judicial inquiries, of all possible evils, the worst and the hardest to resist is an enemy in the disguise of a friend. You cannot impeach him you cannot cross-examine him – you cannot disarm him – you cannot indirectly, even, assail him; and if you exercise the only privilege that is left to you and call other witnesses for the purposes of explanation, you must bear in mind that instead of carrying the war into the enemy's country, the struggle is still between sections of your own forces, and in the very heart, perhaps of your own camp. Avoid this by all means.

5) Never call a witness whom your adversary will be compelled to call. This will afford you the privilege of cross-examination – take from your opponent the same privilege it thus gives to you- and, in addition thereto not only render everything unfavourable said by the witness doubly operative against the party calling him, but also deprive that party of the power of counteracting the effect of the testimony.

6) Never ask a question without an object nor without being able to connect that object with the case, if objected to as irrelevant.

7) Be careful not to put your question in such a shape that, if opposed for informality, you cannot sustain it, or, at all events, produce strong reason in its support. Frequent failures in the discussion of points of evidence enfeeble your strength in the estimation of the jury, and greatly impair your hopes in the final result.

8) Never object to a question from your adversary without being able and disposed to enforce the objection. Nothing is so monstrous as to be constantly making and withdrawing objections; it either indicates a want of correct perception in making them, or a deficiency of real or of moral courage in not making them good.

9) Speak to your witness clearly and distinctly as if you were awake and engaged in a matter of interest and make him also speak distinctly and to your question. How can it be supposed that the court and jury will be inclined to listen, when the only struggle seems to be whether the counsel or the witness shall first go to sleep?

10) Modulate your voice as circumstances may direct. "Inspire the fearful and repress the bold".

11) Never begin before you are ready and always finish when you have done. In other words, do not question for question's sake, but for an answer.

Common causes v. uoi (Sahara Diaries case). itatonline.org

Entries in loose papers/ sheets are irrelevant and inadmissible as evidence. Such loose papers are not “books of account” and the entries therein are not sufficient to charge a person with liability. Even if books of account are regularly kept in the ordinary course of business, the entries therein shall not alone be sufficient evidence to charge any person with liability. It is incumbent upon the person relying upon those entries to prove that they are in accordance with facts.

Entries in books of account are not by themselves sufficient to charge any person with liability, the reason being that a man cannot be allowed to make evidence for himself by what he chooses to write in his own books behind the back of the parties. There must be independent evidence of the transaction to which the entries relate and in absence of such evidence no relief can be given to the party who relies upon such entries to support his claim against another.

The supreme court laid down the following principles.

(i) Entries in loose papers/sheets are irrelevant and not admissible under Section 34 of the Evidence Act. It is only where the entries are in the books of account regularly kept, depending on the nature of occupation, that those are admissible;

(ii) As to the value of entries in the books of account, such statement shall not alone be sufficient evidence to charge any person with liability, even if they are relevant and admissible, and that they are only corroborative evidence. Even then independent evidence is necessary as to trustworthiness of those entries which is a requirement to fasten the liability;

(iii) The meaning of account book would be spiral note book/pad but not loose sheets;

(iv) Entries in books of account are not by themselves sufficient to charge any person with liability, the reason being that a man cannot be allowed to make evidence for himself by what he chooses to write in his own books behind the back of the parties. There must be independent evidence of the transaction to which the entries relate and in absence of such evidence no relief can be given to the party who relies upon such entries to support his claim against another;

(v) Even if books of account are regularly kept in the ordinary course of business, the entries therein shall not alone be sufficient evidence to charge any person with liability. It is not enough merely to prove that the books have been regularly kept in the course of business and the entries therein are correct. It is further incumbent upon the person relying upon those entries to prove that they were in accordance with facts;

(vi) The Court has to be on guard while ordering investigation against any important Constitutional functionary, officers or any person in the absence of some cogent legally cognizable material. When the material on the basis of which investigation is sought is itself irrelevant to constitute evidence it is not admissible in evidence.

It is essential to appreciate Section 34 of the Indian Evidence Act, 1872 which reads as follows:

Entries in books of account, including those maintained in an electronic form when relevant- Entries in books of account, including those maintained in an electronic form regularly kept in the course of business are relevant whenever they refer to a matter in to which the Court has to enquire, but such statements shall not alone be sufficient evidence to charge any person with liability .

Illustration – A sues B for Rs. 1,000/- and shows entries in his account – books showing be to be indebted to him to this amount. the entries are relevant but are not sufficient, without other evidence, to prove the debt.

Admissibility – Entries in books of account regularly kept in the course of business are admissible though they by themselves cannot create any liability:- Ishwar Dass v. Sohan Lal AIR 2000 SC 426. Unbound sheets of paper are not books of account and cannot be relied upon.Dharam Chand Joshi v. Satya Narayan Bazaz AIR 1993 GAU 35.

Issues arising in Sahara Diaries case.

1. If entries in loose papers/ sheets are irrelevant and not admissible as per Section 34 of the Evidence Act, then loose papers/ sheets found at the time of search and seizure could be taken into account ? In a number of search cases additions are made on the basis of writings and entries on loose sheets, Thus based on the SC judgment whether asseesee can argue that these writings have no evidentiary value, more particularly when they are on loose papers and writings not recorded in books of account.

2. Entries are made in books of account and certain expenditure is recorded depending on nature of occupation and work. Explanation 1 to section 37 refers to expenditure incurred which is an offence or prohibited by law however if the expenditure so incurred in paying bribes and amounts for security then can such an amount be disregarded taking into consideration a holistic view. If a bribe is paid to get the work smoothly and expeditiously done in the light of the above whether the amount would be sustainable or not.

3. Entries in books of account alone are not sufficient evidence but there must be collaborative evidence in this connection issue of bad debts arises and the decision to write off the bad debts as an when the assessee thinks that the same has become irrecoverable. In such circumstances the writing off cannot be questioned by the AO based on the rationale of the SC judgment.

4. On conclusiveness it is held that a man cannot be allowed to make evidence for himself by whatever he chooses to write in his own books behind the back of the parties. Here the role of Confirmation Letters assumes importance in number of cases even though loans are given confirmation is not available on record .That merely because there are other evidences but no confirmation letters is the amount to be totally disregarded

5. It is also laid down even if books of account are regularly kept the entries therein shall not alone be sufficient evidence to charge any person with liability. On the question of cash loans or inter-party transactions the nature of evidence will vary from case-to- case.

6. It is also provided that it is incumbent upon the person relying upon the entries to prove that they were in accordance with facts. The issue arises when there are allegations of back dated assessment order or notices issued after due date this is in conjunction with functioning of officers and Government Constitutional functionaries. In practicality it would be almost impossible for an individual assessee to overcome this particular barrier.

7. The judgment notices that it would be in admissible if entries are on random papers at any given point of times. Thus in a search and seizure action random papers and writings including figures of alleged cost of construction of house or trading in shares or derivative are found thus on the basis of this judgment it follows that they are inadmissible evidence and cannot be considered in making additions.

8. The judgment also deals with matters done which may have co-relations with random entries. In this connection reference to undisclosed income of another person in Section 158BD assumes significance. Issue arises as to how the other person would react and deny the entries in the books of account of the searched person.

9. One of the basis in the judgment refers to fictitious entries in absence of cogent and admissible material on record. This would make entries recorded in diaries an issue whether to be admitted or not an evidence which is against the particular person has to be discharged beyond reasonable doubt and a liability cannot be fastened based on needle of suspicion.

Evidence not produced before it authorities and Writ Petition

At the time of assessment, the assessee has not given any information or material evidence to the AO by which the entry could be verified. The AO therefore made an addition. The assessee filed a revision petition before the CIT, who recorded that the assessee was given sufficient opportunity to present evidence but he failed to do so. The addition was confirmed. The assessee filed a writ petition claiming that there was sufficient factual material and evidence with him.

InCharanjit Singh v. CBDT (2016) 388 ITR 469 (P&H) (HC) it was held that the factual metrix was required to be established by producing material evidence before IT authorities. As the assessee was unable to give evidence or materials neither did the assessee prove that he was prevented from producing evidence, the writ petition cannot be entertained. It was held that the assesse could not be allowed de novo trial under the garb of allowing one more opportunity, that absence of any material on record cannot give assessee a right to file a writ petition the Court relied upon decisions of the SC that wherever disputed questions of fact are raised in writ proceedings, writ was not an appropriate remedy.

Bhaghubai D. Khalasi v. State of Gujarat (2007) 4 SCC 241

Dwarka P. Agarwal v. B.D. Agarwal AIR (2003) SC 2686

Mukesh Kumar Agarwal v. State of UP (2009) 13 SCC 693

Records destroyed resort to RTI

InFranchise India v. ACIT (2016) 388 ITR 563 (P&H) (HC)the records were destroyed in fire accident and the assessee had lodged a police complaint. However the records were made available to the assessee under Right to Information Act 2005. In a reopening matter the assessee challenged that there was violation of principles of natural justice. The Court held that when the entire records, as asked for by the assessee, were made available then there was no need to go into the technicalities or the issue of natural justice or prejudice caused.

Safem and Nexus qua evidence

In connection with Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 the legislative object is to ensure that the properties purchased out of smuggling activities or by illegal means in violation of the foreign exchange regulations cannot be permitted to be enjoyed by a convict or detenue or relative holding property as benami.

It is only when link or nexus of the properties with the convict has connection to income from such illegal activity which is established the only properties standing in the name of a relative can be forfeited. In competent authority SAFEM v. M. Khadar Mouideen (2016) 387 ITR 390 (Mad.) (HC). The Court laid down a ratio that nexus has to be shown between properties and convict and income from illegal activities and the establishment of material and evidence for such acquisition before forfeiture.

Whether an enquiry where no proceedings are pending by an authority amounts to violation of fundamental rights

Constitutional validity of amendment to Section 133(6) by adding the words “enquiry or” which granted power to call for information by IT authorities even when no proceedings are pending against an assessee came up for consideration in Pattambi Service Co-operative Bank Ltd. v. Union of India (2016) 387 ITR 299 (Ker.) (HC).

It was held that right of privacy should be balanced with larger public and economic interest of the nation and that the right to privacy could not be extended to militate against the right of the State information under its fiscal administration.

IT authorities asked co-operative service banks to give details of transactions of persons having deposit of ₹ 5 lakhs and interest income exceeding ₹ 10,000/- in service Co-operative Bank. The contention was such an enquiry was a roving and fishing enquiry seeking information even when no proceedings are pending against such persons and that the investigation infringes into the customers private financial affairs and further the relationship between a banker and its customers is fiduciary in nature and thus parting such information is arbitrary and invasion of rights to privacy.

The Division Bench of the Kerala High Court upheld the Constitutional validity on the ground that the avowed object was to get financial transaction which could be associated with black money and the intention was to curb the menace of illegal transactions.

However, when there is a conflict between welfare legislation and tax legislation, the welfare legislation will prevail as laid down in Managing Director TNSTC Limited v. Chinna Durai (2016) 385 ITR 656 (Mad.) (HC).

The Motor Vehicles Act, 1988 is an Act for compensating accident victims who have suffered bodily disablement or loss of life. In the compensation, so given TDS sought to be deducted by IT Department. To this effect, a circular was also issued dated 14-10-2011. That TDS is to be deducted on the award amount and interest accrued. The Madras High Court following the decision of Himachal Pradesh High Court concluded that TDS cannot be deducted since the compensation and interest thereon do not fall under the term “income” as defined under the IT Act.

[Source: Paper presented at Two Day National Tax Conference held on 22nd & 23rd April, 2017 at Anand, Gujarat]

Though no official notification is so far issued, as per the Press Report, the Goods and Services Tax Act (GST) will be enforced on and with effect from 1st July, 2017. Even if that date is postponed to some other date in future still the moot question about the status of Advocates rendering legal services would arise for our advocate members. It is from that point of view, I would examine herein the relevant legal provisions under the said enactment, and offer may view thereon.

2. Before I consider the actual status of Advocates it would be beneficial to know certain basic provisions which will have its impact on the question on hand.

Definitions

3. Term ‘business’ have been defined u/s. 2(17) of the CGST Act to include any profession, vocation etc., and therefore advocates carrying on the legal profession would be covered.

4. The fees charged to a client for the legal services rendered by an advocate, would be covered by the inclusive definition of the term ‘consideration’ u/s. 2(31). Similarly u/s. 2(93) the client receiving the benefit of such professional services would be a recipient of supply of services. On the same analogy the advocates supplying the professional legal services would be supplier of his services as defined u/s. 2(105) read with section 7(1)(a) while the taxable person is one who is registered or is liable to be registered u/s. 22 or 24.

Charging section

5. The heart of the levy would naturally be the charging section 9 which provide for the levy and collection of tax. Section 9(1) provide for the normal levy of tax of GST on all intra-State supplies of goods or services for both on the value that may be arrived at under section 15 of the Act. The payment in question is to be collected and paid by the taxable person as defined section 2(107) service provider i.e. the person who is registered or liable to be registered u/s. 22 or section 24. The topic of registration under those section will be dealt with separately later on. Section 9(3) provide for the collection of tax on the notified supplies of services on reverse charge basis, from the recipient of such services and all the provisions of the Act would apply to such recipient as if he is the person liable for payment of tax in relation to the supply of such services.

Reverse charge payments

6. As per the discussion in the GST Council Meeting held on 18th and 19th May, 2017 apart from the rates of GST for supply of goods, it also approved certain services for the purpose of reverse charge provisions as well as those which will be notified to be exempted services in exercise of its power u/s. 11(1) read with section 9(3).

7. Under the definition u/s. 2(98) of the term ‘reverse charge’ it would be the liability of the recipient to pay tax on the supply of such notified services. The list of such services under reverse charge have been published for general information which will be given effect to, through Gazette notification after the law is enforced. Entry 3 therein reads as under:

Sl. No.

Service

Provider of Service

Percentage of service tax payable by service provider

Recipient of Service

Percentage of service tax payable by any other person other than service provider

3.

Services provided or agreed to be provided by an individual advocate or firm of advocates by way of legal services, directly or indirectly

An individual advocate or firm of advocates

NIL

Any business entity

100%

Exemption

8. On the same day the GST Council also decided certain services to be notified as exempted services. The list include services by Govt., or local authority but restricted to the specified services, services by Reserve Bank and other similar bodies. Entry 15 provides for exemption to services provided by an arbitral Tribunal to any person other than a business entity or such entity having turnover up to 20 lakhs. It also specify services provided by a partnership firm of Advocates or an individual as an Advocate, other than a senior Advocate, by way of legal service to an advocate or their firm. The legal service so exempted by an Advocate would also include the same rendered to any person other than a business entity or such an entity with a turnover of less than 20 lakhs in the preceding financial year. As far as senior Advocates are concerned their legal services would be exempted if rendered to any person other than a business entity or such entity having less than 20 lakhs turnover in the preceding Financial Year.

Legal services

9. Considering the impact of both the above decisions by GST Council it is by now very clear that an individual advocate rendering legal service to any business entity is not liable to pay any tax as service provider and 100% thereof is payable by the recipient of the service i.e. the client or a business entity. It may kindly be noted here that the reverse charge liability refers to all types of advocates without any exception as is the case for exempted services. Again the exempted services is restricted only when the professional legal services were rendered to another advocate or their partnership firm also providing such services or to a person other than a business entity as also the entity having turnover of less than 20 lakhs. Similar limitation is also provided when the legal services is provided by senior advocates however in their case, the legal service to another advocate is not exempted therefore in such cases the list of reverse charge system will be applicable under which as mentioned hereinabove, there is no classification of senior advocate and other advocate, under which the service tax payable by the service provider (an advocate or his firm) would be nil and 100% service tax would be payable by the recipient of the services in question.

Registration

10. Having considered the liability of an advocate, another question would be in regard to the necessity for registration under the GST Act.

11. For considering the aforesaid question the provisions of Chapter VI especially sections 22 and 24 will be applicable. Section 22 is applicable to those suppliers, who had a turnover of more than 20 lakhs in one financial year and for those persons who were already registered under the existing law i.e. Service Tax or State VAT Act. It also apply to a transferee who take over the business of the transferor (slump sale transactions).

12. Section 24 refer to certain persons who were statutorily required to be registered. Such persons include inter alia a person who was required to pay tax under reverse charge. In other words if an advocate renders legal service to a person not otherwise liable for registration such person will have to get himself registered because of his legal liability to pay tax as a service receiver from an advocate under reverse charge system. Section 24 also provide for other categories of persons who are required to be registered under the Act. Accordingly a person making supplies within the State is required to be registered even if he happens to be a casual taxable person or a non-resident taxable person making taxable supply within the State. Such persons other than casual and non-resident persons have to apply for registration within a period of 30 days from the date on which he may become liable, while the non-resident or a casual supplier have to obtain the registration, in advance at least before five days prior to commencement of the supply activity in the State.

13. Applying the above provisions to an advocate rendering legal service though not liable for registration, the person to whom he may make payment for rendering services to him, may be a company rendering consultancy service or to an auditor for the purpose of filing the return under Income Tax Law or for auditing the books of the Advocate liable u/s. 44AB of that Act will not be so covered by the reverse charge liability of the recepient of supplies. In such cases the payment to junior for his rendering service to the Advocate would be covered by the notification of exemption under entry 15(b)(i) if such junior happen to be an advocate. In case of the services other than legal services, rendered to an advocate for which the fees are paid, would not be exempt and therefore such supplies of services would be taxable with the result such service providers will have to get themselves registered as taxable persons.

14 Considering the scope of both the sections 22 and 24, there is no provision making it obligatory for an advocate to obtain registration under GST, I am of the firm opinion that an advocate covered by the reverse charge system is not required to get himself registered for his rendering legal services.

Format of invoice

15. The other question incidental to above controversy is the format of the invoice to be prepared by an advocate to his client. In that regard a short question arises is whether an advocate has necessarily to quantify the tax that is required to be paid by the service recipient. In that regard the provisions of rule 4A of the Service Tax Rules, 1994 is referred. In my view, the impression so gathered is unfounded in absence of any similar rule in regard to the Invoice Rules already available under GST.

16. Section 31(2) provide for issue of tax invoice by a registered person supplying taxable services within the prescribed period. An advocate covered by Reverse charge for rendering legal service would not be a registered person and therefore that provision is not applicable to him. On the contrary u/s. 31(3)(f), a person who is required to pay tax under the reverse charge system, for receiving the supply of services is required to issue on invoice to himself on the date when he receives the services. He has also to issue a payment voucher at the time of making payment to the advocate concerned for supply of his legal services. The revised invoice rules do not contain any provision parallel to 4A of the Service Tax Rules, 1994 therefore the advocate can continue to issue usual memo of fees for the legal services as per the manner presently followed which does not require any change or modification.

New scheme of classifications

17. While concluding I may refer to the proposed new scheme of classification of services under the headings of Service Code Tariff. Under the Heading 9982 the group of legal and accounting services are enumerated. 99821 refers to legal services as under :

8. While on the subject I may also refer to the presently pending issue before the Supreme Court in my own case being SLP Number 10855 of 2015 arising out of the judgment of the Bombay High Court dated 15th December, 2014 holding the advocates liable to pay tax under the service tax under the Finance Act, 1994 during the period prior to the issuance of Notification No. 30 of 2012 dated 20th June, 2012 but after insertion of 65(105) (zzzzm) by Finance Act, 2011. The Bombay Bar Association have also filed a separate petition which also is tagged up with my petition. The operation and implementation of the Bombay High Court Judgment have been stayed.

Conclusion

18. Summing up the discussion I may recommend to all my professional advocates brothers and sisters to keep all their clients well informed about their reverse charge obligation to pay GST for the legal services that may be rendered in future instead of taking advantage of the exemption notification.

I hope I have been able to clear all the doubts in the minds of fellow advocates who may not be conversant with the GST provisions.

Fill the brain with high thoughts, highest ideals place them day and night before you and out of that will come great work.

As I stand before you today, I am conscious that tax is a reality, though the best things in life, are usually free!

I am happy to be here this evening, at the International Conference, organised by All India Federation of Tax Practitioners. I am glad, that you have chosen Sri Lanka, as the venue for your Conference. This Conference happens at a time when Sri Lanka is making efforts, to be a financial hub, in the Indian Ocean Region.

The theme of your Conference is apt: ‘the role of tax professionals, in global economy.’ Many of you are Chartered Accountants; and Advocates by profession. Tax professionals have an important role to play in today’s world.

We are going through interesting times. There is a renewed focus worldwide on ‘good governance’. Governments are genuinely, making an attempt to make a difference to the lives of average citizens. This is visible as ‘Susha san’ in India as ‘yaha palan aya’ in Sri Lanka.

Rapid socio-economic development is the need of the hour. The developmental aspirations of our 1.25 billion people need to be met and met quickly. Taxation is the most potent tool, available to vitalise and channelise economic development. Taxation is no longer a process of gathering resources, for the survival of State. It is one of the most effective means available to the State, to ensure growth with equity. Taxation is the fiscal arm, used by the modern State today to achieve its socio-economic objectives.

As the world awaits the roll-out of Goods & Services Tax (GST) from July, which is the biggest tax reform in India, that has happened so far, I see your role, becoming more crucial. We hope to see several, positive externalities, from the creation of a single national market, through GST. Economists are predicting, an addition of 2% growth, in India’s GDP, from the roll-out of GST.

The demonetisation and, the currency reform initiative, in India, are expected to increase, tax compliance, and economic growth, in the medium term.

India also, has currently the largest, financial inclusion programme, in the world.

You would agree, that the change has been, phenomenal. You, as tax practitioners, and advisors, have to interpret and implement, the change. Our flagship programmes, can only succeed, with your active participation.

The increasing use of technology, in your field, has been a boon. Even Albert Einstein, has confessed, that income tax is the hardest thing to understand in the world. With information and processing, all going online, things have changed; however, your profession continues, to remain highly specialised, and intricate. I am glad that All India Federation of Tax Practitioners, has been playing a seminal role in educating the public about tax matters.

India-Sri Lanka, Double Taxation Avoidance Agreement, which we entered in to 2013, updating our earlier agreement, on tax avoidance, has been an important step, in the bilateral economic engagement.

I would like to give you, a snapshot of India-Sri Lanka, bilateral economic partnership, which has become an important pillar, of our bilateral engagement, in recent years. As Prime Minister Modi said during his recent visit to Sri Lanka as Chief Guest for International Vesak celebrations, “we are at a moment of great opportunity, in our ties with Sri Lanka." India’s rapid growth, can bring dividends, for the entire region, especially in Sri Lanka. There is a lot that we can do together.

India is also among the top investors in SL, with accumulated investments, of more than a billion dollars, in the last 15 years. Investments worth US$ 1 billion, are in the pipeline.

We are interested, in making investments in energy; hard infrastructure and connectivity projects, in Sri Lanka. We have a robust, development partnership. An MoU, which provides a framework for co-operation, in joint economic projects, was signed during the visit, of Prime Minister of Sri Lanka, H.E. Ranil Wickremesinghe in April.

Sri Lanka is, India’s second largest trade partner in South Asia, with annual trade, of more than US$ 4.6 billion. India and Sri Lanka, entered into an FTA, in 2000, the first for both countries. Total trade has increased 8 times since then.

We are keen to integrate, Sri Lankan economy in the global supply, and value chain. We are ready to share our skill set, with Sri Lanka. We are trying to upgrade, the FTA, to cover investment and services. Negotiations are underway, on the Economic and Technological Co-operation Agreement (ETCA).

Sri Lanka became a proud partner in the South Asia Satellite, which India launched on 5yh May.

Prime Minister is committed to ‘Neighbourhood First’ Policy. The latest example of this, is the swiftness, with which our Navy, came to Sri Lanka’s assistance, during flood relief. Within hours of Sri Lanka’s request, our ships were here, and undertook rescue, relief and medical operations.

As we move the path of Sabka sath Sabka vikas with our neighbours, I see an increasing role, for us to work together, to disseminate information, to the world, regarding the economic revolution, that is happening in India. We could also, bring home stories of success, which may be worthy of emulation. I count on your support, in this regard.

It fills my heart with unspeakable joy to welcome you all on the soil of Sri Lanka on this auspicious day, the auspicious event.

His Excellency, Mr. Taranjit Singh Sandhu is amongst us. It is a matter of great pride for us. I welcome his Excellency from the core of my heart. His Excellency is a person of unmatchable example. I have no words to thank, I can never forget this gesture, extremely affable and amiable, a perfect combination of head and heart.

All India Federation of Tax Practitioners is an apex body of various Tax Bar Associations and Tax Consultants of India. Presently about 132 professional associations from various States are its affiliated members and approximately 7,000 Advocates, Chartered Accountants and Practitioners are its life members.

With the blessings of the former Chief Justice of India, Hon'ble Mr. Justice J. C. Shah and distinguished Jurist Mr. Nani A. Palkhiwala, the Federation had witnessed its birth on 11-11-1976. The moto of association and its members is to achieve excellence without any compromise on ethics and education.

India and Sri Lanka both have civilisational and historical links since time immemorial. We have built upon a legacy of intellectual, cultural, religious and linguistic interaction. The gift of Buddhism was given by India to Sri Lanka through King Ashoka, 2500 years ago. During this time, a sapling of the bodhi tree was brought to Sri Lanka and the first monastery and Buddhist monument was established. We have common civilisation, common values and common traditions. Even we have got our independence from the colonial bondage simultaneously, India in August 1947 and Sri Lanka in February 1948. Since then, we have not looked behind; both the countries have emerged as independent democratic countries.

Inspired by the civilisational links, the relationship between India and Sri Lanka has reached the position of irreversible excellence. The two countries continue to march in tandem with clear objectives of promoting prosperity, peace and security both within the region and beyond. In recent years, the relationship has been marked by close contacts at the highest political level, growing trade and investment, co-operation in the field of development, education, culture and defence as well as a broad understanding on major issues of international interest. Tourism also forms an important link between India and Sri Lanka. Enhanced connectivity between the people of the two countries and the two economies towards greater integration will be natural and mutually beneficial.

The theme of the Conference is “The Role of the Tax Practitioners in Global Economy”. Globalisation, Digitalization, Make-in-India, Startup India, Standup India all the schemes propagated by our Prime Minister, Shri Narendra Modi requires simple tax laws, early determination of liability and early justice. Taxes are as old as civilisation. The globalisation has a great impact on the legal system in general and on tax laws in particular. The global financial recession and the associated policies for physical consolidation has made the tax evasion and avoidance a prominent issue. Base erosion and profit sharing by MNCs and high net worth individual as well as the role played by the Tax Havens has aggravated the issue. Double tax avoidance agreement is a solution to various issues to the taxpayers to a larger extent.

Friends, we have inherited one of the oldest civilisations, however corruption and the black money are the ailments which keep pulling us back into the sea of misery.

The historic decision of the Government of India to fight against corruption, black money, terrorism and counterfeit currency is a giant leap towards creating a clean and corruption free economy. It is true that a parallel shadow economy generates inflation which adversely affects the poor and middle classes more than others. It deprives Govt. of its legitimate revenues which could have been otherwise used for welfare and development activities. Though it is a short term pain to the honest taxpayers, in the long-term the demonetisation could change the face of Indian economy, improve the Government’s fiscal position and tax compliance. The size of cash economy will shrink.

The Indian Government has concrete action plan to bring in control the parallel economy. Apart from demonetisation, several measures have been taken by the Government. The upcoming GST regime is also set to become a major hindrance to generation of black money in view of better transaction trails offered by it.

As per the Revenue Secretary, inflation will fall by 2% on implementation of the Goods & Service Tax (GST) and create buoyancy in the economy through better compliance and ease of doing business. GST will be a single nationwide sales tax replacing a string of Central and State levies.

India is set to emerge as the world’s fastest growing major economy. According to IMF, India ranks 7th globally in terms of GDP and is expected to grow at 7.1% in 2017. Our Government has floated various schemes to empower the poor, to empower women, to make the youth strong and to make the farmers prosperous. Various initiatives have been offered by the Government to the foreign companies to make the economy global.

Increasing complexity of society, complicated business deals, rapid technological changes etc. requires constant study and interaction with the tax experts as the role of tax practitioner becomes much more challenging. Holding of Conferences like the present one will enable the tax practitioner to face the new challenges in the present scenario.

Friends, I would like to express my gratitude to his Excellency Mr. Taranjit Singh Sandhu for becoming the part of this momentous event and to make us feel a sense of pride.

I also thank Madam Suja for extending her co-operation in co-ordinating this Conference.

Friends, I once again welcome you all on this great day and call upon you to take an oath to build a nation full of opportunities and challenges.

Appointment of Tribunal Members’ Rules, 2017 – a veiled coup by the Executive over the Judiciary? A long legal battle ahead

The Ministry of Finance has by Notification dated 1st June, 2017 notified the Rules for Appointment and Service Conditions of Members of 19 Tribunals in India. The Income Tax Appellate Tribunal [ITAT] is one such Tribunal. A reading of the Rules leaves no two opinions in the mind that the underlying agenda behind the Rules is elimination of the control of the Judiciary over ITAT and correspondingly tilting the same into the hands of the Executive.

The Rules make a marked change in the mode of the appointment of new Members. There is no longer a sitting High Court Judge on the Selection Committee appointing new Members. Moreover, a new Member is to be appointed for a period of three years, whose term is renewable by the Selection Committee. There is also a restriction on him undertaking legal practice after his tenure. These provisions should be a dampener for any person proposing to throw his hat for career of a Member. The sword of an uncertain career will always hang over his head. The uncertainty of renewal of his tenure would also affect the free working of his judicial mind. The fear of consequences of giving a bold decision against the Government would be uppermost in his mind as he may foresee non-renewal of his tenure as retaliatory punishment. If these Rules are allowed to have their sway in this manner, one may see a day that when the present ITAT Members retire, there may not be experienced members to decide the cases.

Power corrupts and absolute power corrupts absolutely is an age old idiom, whose veracity has always survived the test of time. The increase in power in hands of a bureaucrat is always visited by decrease in his moral power. History is a steady witness to this phenomenon. The wresting of the control over the ITAT by the Executive from the Judiciary through the guise of these Rules is a cunning sleight of hand to seize absolute power.

The Income Tax Appellate Tribunal has always functioned as a remarkable institution and it saddens me –if this august institution is culled. It is the final fact finding authority under Direct Taxes. The Income Tax Appellate Tribunal is one rare Institution which functions under the Ministry of Law and Justice. Though initially the ITAT was under Ministry of Finance, in order to give it a judicial status, it was brought under the Ministry of Law and Justice. The other tribunals function under Ministry of Finance and respective Ministries. ITAT is the only institution in our country- which has sanctioned strength of 126 Members and located in 27 cities. The aggrieved parties can file an appeal before the High Court only on substantial question of law. 70% of orders of the Tribunal are accepted by the parties. It is only 30% matters which are carried in further appeal to the High Court. Here also, even in 30% of the matters, 80% of matters are dismissed at the stage of admission itself. It is only 20% of the matters which are admitted – which involves substantial question of law. Even in the 20% admitted cases 69.18% of cases, the High Courts approve the orders of the Tribunal.

The above statistics are self speaking about the reliability of the Tribunal as administrator of justice. What contributes to this reliability ? The experience of the Members and their independence in delivering their decisions contributes to this reliability. With advent of the new Appointment Rules, both of these virtues are bound to be compromised for obvious reasons.

It is also not understandable why there should be no Sitting High Court Judge in appointment of new Members under the new Rules. In first place, the old procedure of having a Sitting High Court Judge was working perfectly well and there was no reason for a departure from the same. The greatest merit was that presence of the Sitting High Court Judge in the selection process assured the taxpayer community that there was bound to be justice at the end of the road because the same would be delivered by a Member, who was after all appointed by a Judge. Moreover, the ITAT has all the makings of a Court in terms of the procedures follows in holding its hearings. The orders of the ITAT are appealable to the High Court. It therefore makes good sense that if a candidate for a Member is interviewed and screened by a Judge so that persons who can align the Tribunal to judiciary are appointed. The appointment by a Judge also allays the taxpayers’ fears of judicial bias in the functioning of the ITAT on ground that its Members are appointed by the Executive, who is their adversary in the tax litigation in form of the income tax department.

Under the new Rules, the President of the ITAT has to retire at the age of 65 and the Members of the ITAT at the age of 62 years. In contrast, longer age limits have been specified for Presiding Officers and Members of other Tribunals. One will find Chief Justice of High Courts and Judges retire at the age of 62. Chief justice of India and Judges of Supreme Court retire at the age of 65, then why such discrimination against Members and the President of the ITAT.?

Interestingly, this is not the first time the Government has tried to interfere with administration of justice. Ever since the Tribunal was established in the year 1941, the President of the ITAT had the power to transfer the Members from one place to another. In the year 1996, the Law Secretary issued a notification stating that, the Ministry of Law has the power to transfer Members. The said notification was challenged by the ITAT Bar Association, Mumbai and other associations. The Bombay High Court, then stayed the operation of notification. When the matter was later transferred to the Supreme Court, the Apex Court upheld the order of Bombay High Court and prescribed the guidelines to Transfer of Members of the ITAT [see Ajay Gandhi v. B. Singh (2004) 265 ITR 451 (SC)] It is pertinent that while the transfer petition was pending before the Supreme Court, the Law Secretary once again tried to interfere with the judicial function of the ITAT. The President of the ITAT Shri T. V. Raja Gopal Rao took a bold decision to move the contempt petition before the Apex Court and the Law Secretary was held guilty of contempt for interfering with the judicial functioning of the ITAT. [See ITAT v. V.K. Agarwal ( 1999) 235 ITR 175 (SC)].

In the year 2003, the Government by way of ordinance dated. 16-10-2003 [(2003) 264 ITR 17 (St) \ introduced National Tax Tribunal Act to take away the powers of the High Courts to decide the questions of law. The matter was challenged before High Court and stay was granted. The Government in the year 2004 again introduced the National Tax Tribunal Bill [(2004) 271 ITR 50 (St)]. Strong objections followed and the Federation made a detailed representation before the Standing Committee of the Parliament – which also gave the report against the constituting of National Tax Tribunal. Unmoved by all these, the Government persisted by passing the National Tax Tribunal Act. The Act was challenged before Bombay High Court and many other High Courts and ultimately the Full Bench of the Apex Court inMadras Bar Association v. UOI (2014) 368 ITR 42 (SC) held that the National Tax Tribunal Act, is clearly a breach of law. It “crosses the boundary” and “encroaches the exclusive domain” of the High Court and hence is unconstitutional .

In another development, the Constitutional Bench of the Supreme Court in UOI v. R. Gandhi /Madras Bar Association (2010) 156 Comp Cas 392 (SC)/ 11 SCC1, struck down provisions relating to the National Company law Tribunal and gave broad guidelines such as –

(a) The Selection Committee should have equal numbers from both the sides, with the Chief Justice’s nominee reserving the casting vote.

(b) On lack of security of tenure (the short term of three years) should be remedied, if Tribunals are to function effectively and efficiently and that they should be able to attract younger members who will be assured a reasonable period of service

(c) The provisions for routine suspension pending enquiry and the lack of any kind of immunity, are aspects which require consideration.

(d) The administration of all Tribunals be handled by the Ministry of Law & Justice. So that neither the Tribunals nor its Members should be made to seek or be provided with facilities from respective sponsoring or parent Ministers or concerned Department.

In the year 2014, the Govt. introduced National Judicial Appointment Commission Act, (NJAC) which came into force from 13 April 2015, which was challenged and in a landmark Judgment of five judges Bench of Apex Court has held that NJAC is unconstitutional as it interfered with the independency of judiciary. Supreme Court Advocates – onRecord Association and Another v. UOI ( 2016) 5 SCC 1.

The Federation, the ITAT Bar Association, Mumbai and many other Associations have objected to the appointment of Members on tenure basis and also excluding of the Judge of the Supreme Court as Chairman of the Committee. Detailed representations were sent by the organisations to the Finance and Law Ministries. We hope the Govt. will consider the representations positively. If the response is not positive, the Associations may have to knock the doors of Judiciary again into maintaining the judicial independence of various Tribunals.

In a recent development, the Madras Bar Association has already filed a writ petition before the Madras High Court against the new Tribunal Members Rules challenging both the Rules and the process by which it was passed. The Associations has assailed the Government’s move in palming off a legislation for appointment of new Tribunal Members unfairly in form of Money Bill – which is alleged as illegal, invalid and a fraud on the Constitution.

It would be best that the Government takes cognisance of rising public opinion against this legislation and recalls it.